A Canary Dies In The Coal Mine As Singapore Says Economy May Flatline

When last we checked in on Singapore back on July 12, things weren’t going particularly well for another global economic bellwether.

Specifically, the trade ministry had just reported that the economy contracted at an annualized 3.4% pace in the second quarter (QoQ), the biggest drop since 2012.

That just underscored the global growth malaise and, along with the worsening outlook for South Korea, served as another “coal mine canary” moment for anyone looking to paint a gloomy picture.

Read more: As China’s Latest Trade Data Disappoints, Market Sees Canaries In Singapore

Fast forward a month and the final numbers for the second quarter are only marginally better. The economy shrank at an annualized 3.3% pace from the first quarter, well worse than both Bloomberg and Reuters consensus (which called for a 3% and 2.9% contraction, respectively).

But that’s not the bad part, believe it or not. Rather, the really rough news comes courtesy of an update to the 2019 outlook.

“The GDP growth forecast for 2019 has been downgraded to ‘0.0 to 1.0%’, with growth expected to come in at around the mid-point of the forecast range”, the Ministry of Trade and Industry said Tuesday.

That represents a rather large downward revision from the previous range of 1.5%-2.5%.

You needn’t even read the full release to know what the problems are. Hint: End market uncertainty and trade tensions.

“Looking ahead, GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half”, the trade ministry said, noting that after a strong performance in H1, the US economy will likely slow as the effect of fiscal stimulus wanes.

As for China, the ministry frets that “growth is projected to ease further on the back of weaker investment growth and a continued decline in exports, exacerbated by the increase in the US’s tariffs”.

In other words, with Donald Trump’s fiscal stimulus fading stateside, and the US president’s “greatest” tariff escalations pressuring the Chinese economy, Singapore’s two largest trading partners are staring down a likely deceleration in economic activity in the back half of the year.

Worse, the seemingly intractable trade dispute between Washington and Beijing is imperiling the broader outlook. To wit, from the ministry’s update:

At the same time, uncertainties and downside risks in the global economy have increased since three months ago. First, the US’s recent announcement of possible tariffs on an additional US$300 billion of imports from China has led to a further escalation of the trade conflict between the US and China. This could severely dent global business and consumer confidence, with adverse implications on global trade and global economic growth. Second, a steeper-than-expected slowdown of the Chinese economy could be precipitated by additional tariffs imposed by the US. This could in turn lead to a sharp fall in Chinese import demand and negatively affect the region’s growth.

That’s about as unequivocal as it gets.

The report goes on to flag likely ongoing weakness in electronics and precision engineering for Singapore, a product of sputtering semiconductor demand. As noted earlier this month while documenting the increasingly precarious plight of South Korea, the pulse of the semi sector is now undulating with the ebb and flow of the trade war, and that’s putting a lot of pressure on sensitive regional economies.

Enterprise Singapore on Tuesday said non-oil domestic exports contracted 14.6% in Q2, after a 6.4% decrease in the previous quarter. That’s thanks to decreased shipments of both electronic and non-electronic products. The forecast for non-oil exports in 2019 was cut to -9.0% to -8.0%.

(Enterprise Singapore)

As a reminder, Singapore’s electronics exports have plummeted over the last several months. Non-oil domestic exports dove 17.3% YoY in June, after dropping 16.3% in May.

(Enterprise Singapore)

Electronic exports fell a harrowing 31.9% in June, marking a dubious encore from May’s 31.6% decrease.

(Enterprise Singapore)

So, if it’s foreboding economic indicators you’re looking for, Singapore slashing its outlook for the local economy to a range of between zero and 1% will certainly work.

When considered in conjunction with the darkening outlook for Hong Kong and South Korea, the picture for Asia is not pretty.


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