Maybank KE: Rising risk of recession after trade war hits Singapore 2Q GDP

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Maybank Kim Eng cut its outlook for Singapore economic growth Friday after second-quarter data came in worse than expected, adding it was “penciling in” a technical recession, with a rising risk of a deeper recession.

“Manufacturing outlook for the third quarter remains bleak as the U.S.-China trade war broadens to export controls, which threatens to worsen the disruption to supply chains. The latest tech conflict between Japan and South Korea could also exacerbate the tech downcycle,” the brokerage said in a note Friday.

”The labor market may also weaken in the second quarter as retrenchments in manufacturing and trade-related sectors are likely to worsen, and as firms cut back on hiring amid rising uncertainties,” it added.

Singapore’s economy barely grew in the second quarter, with gross domestic product (GDP) edging up 0.1 percent on-year, slowing from 1.1 percent growth in the first quarter, according to preliminary estimates released by the Ministry of Trade and Industry (MTI) Friday.

The manufacturing sector contracted 3.8 percent on-year in the second quarter, extending the first quarter’s 0.4 percent decline, the data showed.

The brokerage cut its Singapore GDP growth forecast to 1.1 percent for 2019, from 1.3 percent previously, and added that it expected MTI to lower its GDP forecast for the year to 0.5 percent to 1.5 percent when final data are released in August. That compared with the current MTI estimate of 1.5 percent to 2.5 percent.

If a U.S.-China trade deal doesn’t materialize and a recession emerges in the third quarter, the Monetary Authority of Singapore may ease policy at its meeting in October, the note said.

A technical recession is two quarters of on-quarter economic contraction, while a recession is two quarters of on-year contraction in GDP.