Singapore to 'comfortably avoid' technical recession in 3Q2022, despite second-half slowdown: RHB

RHB’s data suggests that Singapore’s economic growth momentum will moderate in 2H2022, avoiding a technical recession in 3Q2022.

Data from RHB Group Research suggests that Singapore will stave off a technical recession in 3Q2022 despite slowing down in 2H2022, says a report from economist Barnabas Gan dated Aug 23.

According to Gan, RHB’s composite leading indicator, RHB-CLI (SG), which has accurately predicted the latest three boom and bust business cycles in Singapore’s economic history, suggests that Singapore’s economic growth momentum will moderate in 2H2022, avoiding a technical recession in 3Q2022 — defined as two consecutive quarters of negative sequential growth.

“Notwithstanding the slowdown, the RHB-CLI (SG) does not hint at any recessionary cues,” writes the economist. “We expect Singapore to comfortably avoid a technical recession in 3Q22. This is in line with our call made in our recent Singapore gross domestic product (GDP) report for 2Q2022, albeit that any further deceleration in momentum in 3Q2022 may be enough to tip sequential growth into the negative zone.”

This view is further reinforced by the RHB-CLI (SG) indicator, which suggests that GDP quarter-on-quarter (q-o-q) seasonally-adjusted will expand by 0.4% and 0.7% in 3Q2022 and 4Q2022 respectively, compared to a contraction of 0.2% q-o-q seasonally-adjusted in 2Q2022, says Gan.

The RHB-CLI (SG) also suggests that 2H2022 GDP will slow to 3.2% year-on-year (y-o-y) compared to 4.1% in 1H2022. “This will then translate into Singapore’s GDP growth of 3.7% in 2022, against our current forecast of 3.2% and Bloomberg’s outlook of 3.8%,” he adds.

The RHB-CLI (SG) — which predicted the dot-com bubble of 2001, the Global Financial Crisis of 2008 and the recent Covid-19 pandemic-induced slowdown in 2020 — employs regression techniques using six indicators: the Singapore government securities two to 10 year yield spread, Manufacturing Purchasing Managers’ Index (PMI), non-oil domestic exports (Nodx), the Straits Times Index (STI), money supply and business expectations survey.

“The popularity (and necessity perhaps) of having an accurate leading indicator will allow investors to make pre-emptive portfolio reallocation in optimising their return,” explains Gan, noting that the indicator allows investors to “accurately identify” turning points of Singapore’s business cycles and offer early warnings of economic downturns or upturns.

Gan believes that Singapore’s key economic headwinds will include a further slowdown in manufacturing momentum led by the ongoing decline in semiconductor-related demand. “We also expect the services momentum to decelerate in 2H22 as well, given that some pent-up consumer demand seen at the start of the year may have dissipated, while higher inflation year-to-date may have dissuaded some retail expenditure,” he concludes.

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