Singapore’s slow growth raises recession risk

Singapore is often seen as a bellwether for the health of the global economy, and its slump is evidence that momentum has slowed across Asia. (AFP)
Updated 13 July 2019
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Singapore’s slow growth raises recession risk

  • In the second quarter, manufacturing contracted 3.8 percent from a year earlier after shrinking 0.4 percent in the quarter earlier
  • South Korea may also be flirting with recession, while China may report its slowest growth in 27 years

SINGAPORE: Singapore reported dismal preliminary second quarter growth data on Friday, including the slowest pace of annual expansion in a decade, raising bets that a recession and monetary policy easing could be coming.
The quarter’s 0.1 percent gross domestic product (GDP) expansion was below the 1.1 percent forecast in a Reuters poll and the slowest annual growth since 2009’s second quarter, when it fell 1.2 percent.
The trade ministry also said the economy shrank 3.4 percent on a seasonally adjusted and annualized basis — the biggest contraction in nearly seven years compared with a poll forecast of 0.1 percent growth and January-March’s 3.8 percent expansion.
“It is quite disastrous... way below even the worst street forecasts,” said Selena Ling, head of treasury and strategy at OCBC Bank.
The slump in Singapore — often seen as a bellwether for health of the global economy — is the latest evidence that momentum has slowed across Asia as the year-long US-China trade war and sliding growth weigh on the region’s export-reliant economies.
Elsewhere in Asia, analysts say South Korea may also be flirting with recession, while China on Monday is expected to report its slowest economic growth in at least 27 years.
Ling and others say the main drag for Singapore remains the manufacturing sector.
In the second quarter, manufacturing contracted 3.8 percent from a year earlier after shrinking 0.4 percent in the quarter earlier.
Singapore authorities have previously said they will review their 2019 full-year GDP growth of 1.5-2.5 percent, and some analysts say there might be a recession in 2020.
The standard technical definition of a recession is two consecutive quarters of economic contraction. Ling said she expects authorities to soon lower their full-year growth forecast to 0.5-1.5 percent.

FASTFACT

3.8% - Singapore’s manufacturing contracted 3.8 percent from a year earlier in the second quarter.

Electronics manufacturing output, the main driver of Singapore’s economy in the last two years, declined for the sixth consecutive month in May while exports saw its biggest decline in more than three years.
Khoon Goh of ANZ, who described Singapore’s economy as at a “stand-still” in the second quarter, said in a note that with global trade “still reeling” from trade tensions and broader global slowdown, downside growth risks remain.
In a Reuters poll done after release of the Q2 data, seven of 11 economists said they expect the Monetary Authority of Singapore to loosen its exchange-rate monetary policy in its next policy statement, due in October, with the other four forecasting no change.
Jeff Ng of Continuum Economics, who forecast no change, said “There was a one-in-four chance previously that the MAS will ease. Now, it has increased to 40 percent that they will ease on or before October.”


China central bank moves to support financial institutions

Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. (REUTERS)
Updated 24 July 2019
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China central bank moves to support financial institutions

  • Many market watchers believe the PBOC will adjust its money market rates in early August if the US Federal Reserve cuts its key rate, as widely expected, on July 31

BEIJING: China’s central bank offered medium-term loans to financial institutions on Tuesday in an attempt to get more affordable funds to struggling smaller firms, as it steps up efforts to support a slowing economy.
With growth in China sliding to a near 30-year low, global financial markets are closely watching to see if the People’s Bank
of China (PBOC) will trim interest rates soon in line with expected easing by other central banks.
While the PBOC left rates on the medium-term loans unchanged on Tuesday, and the injection had been expected, it funneled more lower-cost funds into a credit program aimed specifically at reducing strains on small and medium-sized businesses.
The PBOC lent 497.7 billion yuan ($72.31 billion), including 200 billion yuan through one-year medium-term lending facility (MLF) loans and another 297.7 billion yuan through targeted medium-term lending facility (TMLF) loans, it said in a statement.
The size of the TMLF funding was 11 percent larger than the last such injection in April.
Interest rates for both liquidity facilities were unchanged from previous levels. The one-year MLF and TMLF remained at 3.30 percent and 3.15 percent, respectively.
The total amount roughly offset 502 billion yuan of MLF loans that were set to expire on Tuesday,
ensuring a steady supply of cash.
“Replacing some MLF with TMLF effectively cut funding costs. We should focus on the lower rate, instead of the net drainage on the day,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore.

BACKGROUND

China is keeping all its policy tools within reach as the trade war with the US gets longer and costlier, but sees more aggressive action like interest rate cuts as a last resort given concerns about rising debt.

The central bank said banking system liquidity will be “reasonably ample” after the lending operations.
About 160 billion yuan in reverse repos were also set to expire on Tuesday, according to Reuters calculations based on official data. The PBOC did not say in its statement whether it had drained funds from money markets on Tuesday.

BACKGROUND

China is keeping all its policy tools within reach as the trade war with the US gets longer and costlier, but sees more aggressive action like interest rate cuts as a last resort given concerns about rising debt.

Some traders said Tuesday’s moves were in line with the PBOC’s support measures since last year, which have been aimed at getting more affordable financing to small and private companies.
While Chinese regulators have urged banks to keep lending to distressed firms, such companies are often considered higher credit risks than big, state-owned enterprises.
Traders and analysts still expect the PBOC to cut rates on some of its liquidity tools in coming months.
The PBOC has already slashed banks’ reserve requirement ratios (RRR) six times since early 2018 to free up more money to lend, while guiding short-term market rates lower through liquidity injections in various forms.
Many market watchers believe the PBOC will adjust its money market rates in early August if the US Federal Reserve cuts its key rate, as widely expected, on July 31.
Cheung from Westpac said it was still possible the PBOC could lower the MLF rate after the Fed’s policy decision.
She also has pencilled in a 50 basis-point RRR cut this quarter, and another in the fourth quarter.