SINGAPORE: Singapore’s economy shrank in the second quarter of the year, official data showed Tuesday, as slowing demand from key export markets China and Europe hit manufacturing.
The 4.6 percent quarter-on-quarter contraction in April-June reversed a growth rate of 4.2 percent in the previous three months, according to advance estimates from the trade ministry based largely on two months’ data.
And despite the figures showing the economy expanded 1.7 percent year-on-year in the second quarter, private economists immediately downgraded their forecasts for the full year.
“The advance Q2 GDP estimate was weaker than market expectations,” Rajiv Biswas, Asia Pacific chief economist at IHS, told Agence France-Presse.
“The contraction . . . reflected declines in output across the board in manufacturing, services and construction, dampening the mood ahead of the SG50 celebrations,” he said, referring to the 50th anniversary of Singapore independence next month.
Biswas said a key factor in the weak figures was a 14.0 percent quarter-on-quarter contraction in the manufacturing sector and a 4.0 percent year-on-year shrinkage.
“Singapore’s industrial production has been very weak in recent months . . . reflecting weakening demand from China and the EU [European Union],” Biswas added.
“The recent Chinese stock market slide increases the risks that Chinese growth momentum will weaken further in coming months, creating further headwinds for Singaporean exports and industrial production,” he said.
He added, however, that the deal reached between the European Union and Greece for a third bailout package “may help to limit downside risks for Singaporean exports to the EU as well as removing the near-term contagion risks to Singapore and the rest of Asia that could have arisen” if Greece exited the eurozone.
DBS Bank said Singapore’s economy was also affected by a domestic labor crunch as the government implemented measures to curb the inflow of foreign workers.
The large presence of overseas workers has become a hot-button political issue in the island nation, with widespread expectations a general election will be called within the year.
Some citizens complain that foreigners are competing with locals for jobs, causing overcrowding and straining public transport and other services.
DBS said it now expects GDP to expand 2.4 percent this year, down from its previous forecast of 3.2 percent, the slowest in six years and towards the lower end of the government’s official estimate of 2.0 percent to 4.0 percent.
United Overseas Bank also downgraded its annual forecast to 2.5-percent growth from 2.9 percent.