Surprise growth helps Singapore avoid recession

Singapore's economy grew more than expected in the second quarter, data showed Friday, helping it avoid a recession, but analysts warned the trade-dependent city faced headwinds owing to weak overseas demand.

The Southeast Asian nation's performance is often seen as a barometer of the global environment because of its reliance on international trade.

Official data showed the economy expanded 0.3% quarter-on-quarter in April-June, having shrunk 0.4% in the previous three months. It had been tipped to contract 0.2% in a Bloomberg survey.

That meant it dodged falling into a technical recession, defined as two successive quarters of contraction.

On a year-on-year basis the economy grew 0.7%, according to trade ministry estimates, after 0.4% expansion in January-March.

The surprise reading came even as manufacturing, a pillar of the economy that covers key semiconductor exports, dropped 7.5% on-year, worsening from the 5.3% decline in the first quarter.

"The economy avoided a technical recession in the second quarter but we continue to expect growth to come in well below consensus this year as elevated interest rates and weaker external demand weigh heavily on economic output," research house Capital Economics said in an analysis.

It noted, however, that the advance estimate is based on the data from the first two months of the quarter "and is often subject to large revisions".

Selena Ling, chief economist at Singapore's OCBC Bank, said  "the anticipated recovery in the global electronics industry, especially for semiconductors, appears to be delayed towards the fourth quarter... or even early 2024".

Because of this, Singapore's domestic manufacturing slump may persist into the third quarter at least, she said in a note.

The trade ministry said in May that it expects the economy to grow between 0.5 and 2.5% this year but warned that downside risks for the world economy have risen.

"We expect economic growth to remain subdued," Capital Economics said, and forecast the economy to grow just 0.5% this year.

"Weak global demand, elevated interest rates and tepid real wage growth are likely to suppress activity in both external and domestic facing sectors of the economy."