Singapore: A recession in Q1 still appears on the cards – UOB

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Senior Economist at UOB Group Alvin Liew assesses the latest GDP figures for the January-March period in Singapore.

Key Takeaways

“Singapore’s final 1Q23 GDP growth coming in at 0.4% y/y (-0.4% q/q SAAR) revised up from the prelim estimate of 0.1% y/y (-0.7% q/q SA), compared to the 2.1% y/y (+0.1% q/q) growth in 4Q22. Despite the revision, 1Q’s y/y growth was still the weakest since 1Q 2021. It was, however, higher than our and Bloomberg median estimate of 0.2% y/y, -0.6% q/q.”

“Growth was dragged by manufacturing sector (-4.8% q/q, -5.6% y/y) in 1Q with all major sectors within manufacturing recording declines in output except transport engineering. Services supported growth with aviation- and tourism related sectors outperforming but trade-related services weighed on growth. Construction activity supported growth although its 1Q pace was revised lower.”

“The MTI in their outlook, was more downbeat about the US and Europe but more positive on China (seeing its recovery to be stronger than expected while noting the downside risks). MTI also warned of a more prolonged and deeper electronics downturn and highlighted two increasing downside risks to the global economy: 1) tightening of global financial conditions and 2) escalations in the Russia-Ukraine war and geopolitical tensions among major global powers. The MTI maintained its previous forecast for the Singapore economy to grow by 0.5-2.5% in 2023, adding that growth will likely be in the mid-point of the range (i.e. 1.5%). In comparison, we still expect full year GDP growth at 0.7% in 2023 (lower end of the official growth forecast range) reflecting our more cautious external outlook. There is a substantial risk Singapore may enter a technical recession in 1H 2023, largely driven by the weakness in manufacturing.”

“Singapore’s headline inflation rose to 5.7% y/y in Apr from 5.5% y/y in Mar. The core inflation remained elevated at 5.0% y/y (unchanged from Mar). The MAS kept its inflation forecasts (that were first made in the 14 Oct 2022 MPS) unchanged in the Apr CPI report and said core inflation rate will remain ‘elevated in the next few months’ but ‘will remain on a broad moderating path’ and ‘to slow more discernibly in the second half of the year’. However, the MAS omitted the previous mention that ‘MAS Core Inflation is projected to reach around 2.5% y-o-y by the end of 2023’.”

MAS Outlook – Keeping Our View Of Status Quo For Oct 2023: While inflation concerns remained in the latest Apr inflation print, it was also evident that the growth outlook has been also subject to greater uncertainty and biased to the weaker side. That said, it is also too soon to expect monetary policy to reverse part of its restrictive stance given the stickiness of core inflation. On the balance of sticky Apr inflation and a weaker growth outlook, we keep the view that the tightening cycle to have ended in Apr and the MAS to maintain this pause in the next Oct meeting. If there is another off-cycle announcement before Oct, we think it will likely be due to a sudden worsening in external conditions leading to a sharp downgrade in growth outlook, so the MAS will likely shift to a more accommodative policy rather than further tightening in its next move, but that is not our base case to expect an off-cycle policy announcement for now.”