Singapore Q2 contraction stokes recession risk: analysts

SINGAPORE (AFP): Singapore’s economic output contracted by 6.5 percent in the second quarter as global electronics demand slumped, official data showed.

Economists said the drop raised the prospect of a second technical recession in three years for export-dependent Singapore, the first Asian economy to suffer negative growth during the last global downturn.

A technical recession takes place when an economy shrinks for two successive quarters.

Singapore’s economy contracted by 0.8 percent in 2009 but expanded 14.5 percent in 2010 as its key markets recovered.

Data from the trade ministry showed gross domestic product (GDP) shrank 6.5 percent quarter-on-quarter on an annualised basis, a sharp reversal from the strong 27.2 percent growth in the first quarter.

Year-on-year, economic growth moderated sharply to 0.9 percent compared with 9.3 percent in the first quarter ended March, the ministry said in a statement.

Singapore’s export-led economy last sank into a recession in the second-half of 2008 as the US subprime mortgage meltdown pushed the global economy into a downturn.

The trade ministry narrowed its 2011 growth outlook to 5.0-6.0 percent from 5.0-7.0 percent, reiterating the revised forecasts first announced by Prime Minister Lee Hsien Loong on Monday.

“Singapore could experience a technical recession with another contraction in the third quarter,” Song Seng Wun, a regional economist with CIMB Research, told AFP.

“With a very small domestic demand, it is still very dependent on external demand for goods and services.”United Overseas Bank senior economist Alvin Liew also expects a technical recession but said it would be brief.

“The outlook for the second-half has been clouded by the stalling US recovery, and compounded by debt problems in the EU,” Liew said.

“We are now expecting Singapore to enter into a technical recession in Q3, but we are not expecting the recession to be prolonged, with the Q4 swinging back to positive territory.”Liew said the bank has cut its overall 2011 GDP growth outlook for Singapore to 4.8 percent from 5.7 previously.

Bank of America-Merrill Lynch economist Chua Hak Bin said in a commentary he also expects a “mild (technical) recession, not of the severity seen” during global financial crises in 1998 and 2008.

Singapore’s trade ministry painted a gloomy picture for the city-state’s main export markets.

“Weighed down by structural factors, growth in developed economies continues to be sluggish,” the ministry said.

“In addition, the recent downgrade of US sovereign debt rating has led to financial market volatility and increased uncertainties,” it added.

“Should these situations worsen, Singapore’s economic growth could be lower than expected.”The second-quarter contraction was induced mostly by a 23.7 percent quarterly decline in the manufacturing sector, which remains a key economic engine for Singapore.

Weaker shipments of semiconductor chips, a major Singapore export, was the main cause, the ministry said.

Trade promotion agency International Enterprise Singapore said overall electronic exports slumped an annual 14.4 percent in the second quarter and was down 11 percent for the first-half.

The decline was caused by weak global demand and disruption to the worldwide supply chain from the March tsunami and earthquake disasters in Japan.