Yahoo Finance 6 Things Businesses Need To Know About Singapore’s Economy Outlook For 2023
Singapore CEOs are fearing and bracing for an economic downturn in 2023, according to the EY CEO Outlook Pulse–Q1 2023. Among those, 75% are delaying or halting their planned investments due to geopolitical uncertainty.
The Ministry of Trade and Industry (MTI) also shared similar bleak views on the economy, citing factors like the recent banking crisis in the United States, which has raised the possibility of tightening global financial conditions, and the protracted escalation between Russia and Ukraine, which could result in new supply disruptions. However, it does expect Singapore’s economy to expand by 0.50% to 2.50% in 2023.
To provide guidance to businesses amidst this challenging external backdrop, the recently released quarterly Economic Survey of Singapore (Q12023) offers valuable insights into Singapore’s economic outlook for 2023.
Singapore Economy Grew By 0.4% Y-O-Y In Q12023 But Faces A High Risk Of Technical Recession
The Singapore economy grew by 0.4% on a year-on-year (y-o-y) basis in the first quarter of 2023. Despite being in positive territory, it marks the third consecutive quarter (y-o-y) of lower growth since hitting a high of 4.4% in 2H2022.
More worryingly, on a quarter-on-quarter (q-o-q), seasonally adjusted basis, the economy contracted (0.4%) from the 0.1% growth in the previous three-month period. This poses a high risk of Singapore entering a technical recession, which is defined as two consecutive q-o-q contractions.
Read Also: 5 Business Sectors That Turned Contractionary In Q12023 (According To The OCBC SME Index)
The Accommodation Sector Was The Leading Driver Of GDP Growth In 1Q2023
The accommodation sector, along with the food & beverage services and administrative & support sectors, were the three biggest contributors to GDP growth in 1Q2023. Coincidentally, these sectors were also one of the biggest beneficiaries of the initial relaxed covid-19 restrictions, which saw both international travel and dining in large groups allowed.
On the flipside, the manufacturing, wholesale trade, and finance & insurance sectors saw contraction in 1Q2023. In particular, the manufacturing sector, which accounts for around 20% of the country’s GDP, has contracted for two consecutive quarters.
Total Employment Grew By 40,100 With The Overall Unemployment Rate Dropping To 1.8% From 2.0%
Singapore’s labour market continues to remain strong, with six consecutive quarters of expansion (+40,100) in 1Q2023 despite the pace of growth slowing over the last two quarters. It was largely driven by employment gains in other services (+12,900) and the construction sector (+9,000). Conversely, the retail trade and wholesale trade sectors saw declines of 200 and 400, respectively, over the same period.
Though there were higher retrenchments in 1Q2023 across all sectors, the overall unemployment rate declined on a seasonally adjusted basis to 1.8% in March 2023 from 2.0% in December 2022. Furthermore, both the resident and Singapore citizen unemployment rates are well below their pre-pandemic levels, underscoring the current tight labour market.
Overall Labour Productivity Dropped 6.6% In Q12023
The overall labour productivity, which is measured by real value-added per actual hour worked, extended its decline from the previous quarter by falling 6.6% on a y-o-y basis in 1Q2023.
Among the sectors, administrative & support (13.5%), accommodation (7.6%), and food & beverage services (5.6%) posted the strongest productivity gains. However, overall productivity was dragged down by declines in the manufacturing (-12.2%), construction (-9.6%), and finance & insurance (-9.0%) sectors.
Unit Labour Cost For The Economy Rose By 9.3% In 1Q2023
Higher manpower costs and lower productivity pushed the overall unit labour cost (ULC) for the economy to rise by 9.3% on a y-o-y basis in Q12023, which follows a similar gain in the previous quarter.
It’s worth noting that the three sectors with the biggest changes in their ULC: finance & insurance, manufacturing, and wholesale trade, were also the sectors that contracted in Q12023.
Conversely, the only two sectors that saw productivity gains surpass an increase in total labour cost per worker are the real estate (-6.1%) and administrative & support sectors (-9.4%).
The Type Of Demand May Affect A Sector’s Performance
As a small nation, Singapore relies heavily on external demand. The chart below shows the total output of each sector and the extent to which the sector is reliant on external demand, either directly or indirectly.
For instance, among the sectors that are more reliant on external demand, the contribution of direct exports to the total export share was highest among the accommodation, wholesale trade, and manufacturing sectors. This indicates that firms in these sectors might be more vulnerable to changes in external demand factors.
Similarly, among the sectors that are more reliant on domestic demand, the contribution of direct exports to the total export share was lowest among the real estate and construction sectors. This suggests that firms in these sectors would be less susceptible to external demand and instead could be more resilient in 2023 due to increased public housing and infrastructure spending.
This gives us a better insight into how the various sectors could be affected by changes in external and domestic economic conditions.
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