Singapore economy has narrowly averted a technical recession

The Singapore economy has narrowly averted a technical recession. Advance GDP estimates for 3Q15 show that growth was literally flat at 0.1% (QoQ saar), which translates into a modest year-on-year expansion of 1.4% (see Table). Despite the close shave, the storyline hasn't changed. Growth outlook remains dicey amid the strong external headwinds and domestic restructuring is still a major challenge for companies. 

The manufacturing sector remained in reverse gear. Amidst the uncertain external environment, industrial activity has continued to back-pedal. The sector is already in recession, having contracted in the past four quarters in year-on-year terms and in three out of the past five quarters on a sequential basis. Industrial output has also declined in ten out of the past twelve months, and the nearterm outlook doesn't seem to be improving. 

The service sector remained in expansion mode at 0.8% (QoQ saar) while growth for the second quarter has been revised up to +0.2% (QoQ saar), from 1.1% previously. Although it did help the economy avert a technical recession, it didn't quite pick up much slack from the manufacturing sector given its sluggish growth pace. A domestic manpower crunch and heightened risks in the global environment have weighed down on the performance of the sector. 

The Monetary Authority of Singapore (MAS) has eased monetary policy marginally. While it continues to maintain the policy of a modest and gradual appreciation of the SGD NEER policy band, the rate of appreciation will be reduced slightly. With an almost flat growth in 3Q15 and full-year inflation expected to be negative, the easing is in line with the current underlying fundamentals. However, the next meeting is six months down the road. And risks remain in the horizon with potential capital flight that could result from higher US interest rates and / or fears of further yuan devaluation amid a dreary global outlook. 

The global environment is becoming more challenging. Risks surrounding the US rate hike amid a sluggish recovery, a cloudy Eurozone outlook and the deceleration in China will continue to weigh down on growth outlook in the near term. Although the economy did avert a technical recession and growth figures, average GDP growth for the first three quarters stands at 2.0%, which is at the lower end of the official forecast range of 2.0-2.5%, and in line with the (belowconsensus) full year forecast of 1.8%.