A technical recession may be on the cards in Singapore

A technical recession may be on the cards. Latest August industrial production figure is another addition to the long list of poor data over the past 2 months. The headline number shrunk by 7.0% YoY, down further from an already dreary 6.4% slide in the previous month. This is the tenth month of year-on-year decline over the past 12 months and the outlook for the manufacturing sector doesn't look like things will improve in the near term. Plainly, the manufacturing sector is already in recession, having contracted by 3 consecutive quarters in year-on-year terms and in 3 out of the past 5 quarters on a sequential basis. In fact, risk is conditions may worsen in the coming months given the dicey external environment. More importantly, production output was down by 3.7% MoM sa. This wiped out the marginal 0.7% gain in the previous month. Anything less than a 3% gain in September would spell trouble for the economy. 

GDP has contracted by 4.0% QoQ saar in 2Q15. And recent manufacturing and export data are hinting of another quarter of disappointment. However, whether the economy eventually dips into a technical recession depends not only on the manufacturing sector. Services sector is the crux of the issue. Services sector has always been the stable engine of growth for the Singapore economy. It accounts for about two-third of the economy and historical trend shows that the economy turns along with the services sector

Yet, outlook for the services sector is not bright either. Growth in the sector moderated to 3.5% YoY in 2Q15, from 4.2% previously. Being relatively more labour intensive, a domestic manpower crunch has weighed down on the performance of the sector. In addition, external-oriented services clusters have been weighed down by the heightened risks in the global economy. The services sector has contracted by 1.1% QoQ saar in 2Q15. Another quarter of contraction will spell a technical recession for the economy.