SINGAPORE, July 15 — Some key engines driving Singapore’s economy are set to post slower growth as global demand has fallen with rising costs, but a recession here is not on the cards for now, economists said on Thursday (July 14).

The sectors on track to record weaker growth are wholesale and retail trade, as well as transportation and storage industries.

They were commenting in response to economic data for the second quarter of the year, which was released by the Ministry of Trade and Industry (MTI) earlier in the day.

The economists also warned that moves to curb high levels of inflation by governments here and abroad could further reduce consumer spending and could have taken an even heavier toll on these sectors.

On a brighter note, those sectors that were hit hard by the Covid-19 pandemic — such as construction, hospitality and aviation — are likely to recover, they added.

Advance estimates released by MTI, based on preliminary data, showed that the economy had grown by 4.8 per cent year-on-year in the April to June quarter.

In a separate announcement, the Monetary Authority of Singapore (MAS) announced a further tightening of monetary policy as it revised upwards its forecast for inflation for this year to 3 to 4 per cent.

Following the twin announcements, the Singapore dollar immediately appreciated, rising as much as 0.7 per cent against the United States dollar, the biggest intraday gain since May, financial news agency Bloomberg reported.

Several of the economists interviewed by TODAY suggested that growth expected in certain sectors of the economy could be dampened by the effects of the tighter monetary policy.

Growth expected to be ‘slow and uneven’

Economist Chua Hak Bin from Maybank attributed the emerging slowdown slump in wholesale and retail trade as well as transportation and storage to external, trade-oriented factors.

"It is clearly impacted by the global slowdown. And I think we should continue to expect that to watch the second half, with emerging global headwinds, that are probably going to get even more powerful,” he said

"It is clearly impacted by the global slowdown. And I think we should continue to expect that (in) the second half, with emerging global headwinds, (these factors) are probably going to get even more powerful,” he said.

Song Seng Wun, economist at CIMB Private Banking, said that the main worry is whether the growth momentum slows down further.

"There are signs that momentum may have slowed or will slow down further in the second half of the year,” he said.

Chua from Maybank expects that sectors such as hospitality, aviation, air transport sectors and construction — which had been held back during the pandemic — would likely grow further in the coming months with the easing of pandemic-related restrictions.

These sectors would boost overall growth, he added.

Agreeing, Song said that with various activities in Singapore picking up due to the easing of restrictions, growth momentum would be seen in various industries in the second half of this year, spurred on by pent-up demand.

"Many of (these industries) are still well below pre-pandemic levels. They will probably recover,” he added.

MAS expected to maintain tight stance

Chua expects MAS to maintain the current tighter monetary stance in the next couple of months "unless inflation surprises on the upside yet again”.

He also expects inflation to peak in the third quarter.

"Core inflation will probably peak in the third quarter and come down by the fourth quarter. It’s just that we are not quite sure how fast it will come down.”

Chua expects inflation to peak at 4 per cent before falling, noting that oil and food prices have fallen in recent weeks.

Song cautioned that aggressive tightening of Singapore’s monetary policy to cool inflation expectation would inevitably "take the wind out from consumer spending and consumption in general”.

However, the key driver here is the aggressive increasing of interest rates by central banks around the world to try to combat inflation.

"As a small open economy, Singapore’s interest rates track global interest rates,” he said.

MAS implements monetary policy by managing the value of the Singapore dollar against the currencies of the country’s main trading partner rather than directly setting interest rates.

Bernard Aw, economist for Asia Pacific at credit insurer Coface, said that global energy prices are expected to remain elevated through the second half of the year despite easing from recent highs.

This means that Singapore can expect domestic prices for electricity and fuel to stay higher for now.

Low probability of recession

On the possibility of a recession here, Chua from Maybank said that although the probability is low at this point, the risk would increase if the US central bank, the Federal Reserve, keeps on hiking interest rates.

Interest rates in Singapore might then shoot up again.

Should the US and Europe fall into recession, he said that it would be difficult for Singapore to escape a similar downturn. Still, he regards that as a slim possibility this year.

Selena Ling, OCBC bank’s chief economist and head of treasury research and strategy, said that a recession is not on the cards for the Singapore economy for now despite the external headwinds, given that year-on-year economic growth here is expected to come in at about 3.4 per cent in the second half of the year.

She added that there are potential recession worries in the US and Europe, due to factors such as the energy crisis, a slowing China economy and central banks hiking interest rates.

"These factors impact overall business and consumer confidence at this juncture.”

Yet, even if a recession does not materialise in these regions, a slowing external growth momentum will still weigh on Singapore’s trade-related sectors for the next six months, she said. — TODAY