Landscape of Singapore city in day morning time from

Credit Suisse report: Recession in Singapore expected in 2019; slower growth in retail, tourism

A recession is possibly on the horizon as Singapore’s GDP may record further gradual decline from the 3.4 per cent recorded in the second quarter of this year, according to according to Swiss multinational investment bank Credit Suisse AG.

Credit Suisse, in its latest report on Singapore’s market strategy, also observed that Singapore’s GDP growth in the second quarter of this year has “slowed more significantly compared” in contrast to regional competitors in international trade such as Hong Kong and South Korea.

Hong Kong’s GDP grew by 0.6 per cent, South Korea by 2.1 per cent, and Taiwan by 2.4 per cent, while Singapore’s GDP grew only by 0.1 per cent, noted Credit Suisse, as seen in the graph below.

Source: Credit Suisse

From a year-on-year (YoY) perspective, a GDP growth of 0.5 per cent is projected to take place, which Credit Suisse posited to be a significant slowing down from the 3.1 per cent recorded last year, and is below the Ministry of Trade and Industry’s prediction of 1.5 per cent to 2.5 per cent.

Trade-dependent industries bound to take a hit, strong growth in information and communications industry may be insufficient to offset overall decline: Credit Suisse

Growth in tourism is expected to slow down by 1 per cent YoY this year, which falls short of Singapore Tourism Board’s projection of 1-4% increase, due to “a slowdown in arrivals from China, Indonesia and Malaysia, impacted by poor consumer sentiment and currency weakness relative to the Singapore dollar”, Credit Suisse predicted.

“In addition, loss of market share of Chinese tourists to countries such as Vietnam and Japan presents further downside risks,” the report added.

Tourist spending is predicted to “decline even sharper as higher number of daytrippers and multi-destination visitors results in short lengths of stays”, Credit Suisse projected. This can be seen in the decrease in tourist spending on shopping and accommodation by 13 per cent and 6 per cent respectively, as the average length of tourism visits fell further to 3.3 days.

While electronics manufacturing contributed to 80 per cent of the growth in value-add in the sector in 2017 and 2018, Singapore’s manufacturing sector may still take a hit as its growth is predicted to “reverse sharply” in the second half of this year. A “weakness in trade-related sectors is likely to dampen services demand”, according to Credit Suisse.

“Our more conservative forecast is driven by our cautious view on the manufacturing sector, where we expect a decline of 3.2% YoY led by contraction in the electronics cluster. This is unlikely to be offset by the construction and services sectors,” said Credit Suisse in its report.

Even strong growth in other industries such as information and communications may not be sufficient in offsetting the decline in manufacturing and retail trade, as the sector only makes up 4 per cent of Singapore’s GDP.

“The information and communications sector has been a relative bright spot in the economy, growing at close to 5% per annum since 2016. The strong performance has continued through 1Q19 with 6.6% YoY growth.

“Even with our expectation for growth to remain strong at 6.5% YoY in 2019, we do not expect this to be able to offset weakness in other segments as it represents just 4% of total GDP,” Credit Suisse predicted in its report.