SINGAPORE — Jobs here could be hit as economic weakness widens and seeps into the services sector, several economists said, in response to the dismal economic and trade data announced on Tuesday (Aug 13). 

Mr Brian Tan, regional economist from investment bank Barclays, told TODAY: “Whatever weakness we saw on the global front, it’s starting to seep into the economy. Previously, we can argue that one or two manufacturing sectors are weak, but it doesn’t mean the whole economy (is affected). 

“Now we’re starting to see the services sector, as the biggest employer and sector, also slowing down.”

He added that the slower-than-expected growth in the services sector is an “undeniable” indicator that Singapore’s economy is slowing. 

Total non-oil domestic exports for the year is projected to contract by 8 to 9 per cent, after slumping 14.6 per cent in April to June from the same period a year ago, trade agency Enterprise Singapore said.

At the same time, the Ministry of Trade and Industry (MTI) is slashing its 2019 growth forecast for the second consecutive quarter this year, from between 1.5 and 2.5 per cent to between 0 and 1 per cent. 

MTI’s permanent secretary Gabriel Lim said that the weaker growth outlook is in part due to escalating trade tensions between the United States and China, as well as a slowdown in the economies of China and the eurozone, which comprises 19 member states of the euro monetary union.

In the second quarter of this year, Singapore’s economy grew 0.1 per cent compared to the same period last year.

Given these conditions, Mr Terence Ho, divisional director of manpower policy and planning at the Ministry of Manpower (MOM), said that he expects “some upward pressure on unemployment rates and also retrenchments”.  

In a Facebook post on Tuesday, Trade and Industry Minister Chan Chun Sing said that the Government “will continue to monitor the situation closely because every economic cycle is different and we must apply the right measures in order to effectively support our businesses and workers.” 

He added: “We should brace ourselves for the challenges ahead but we need not be overly pessimistic… We have always overcome challenging economic cycles in the past by standing united and building on our strong fundamentals and this time is no different.”

In an interview with Malaysian journalists last month, Deputy Prime Minister Heng Swee Keat said that the Government is ready to roll out a stimulus package to help businesses and workers should the global economy worsen. 

POTENTIAL WEAKNESS IN THE LABOUR MARKET 

While MOM noted that unemployment rates and retrenchments are still low and the economists who spoke to TODAY agreed that the labour market has not yet shown any signs of stress, things may change if economic weakness continues to persist in the next few quarters. 

Senior economist Irvin Seah from DBS bank said that this is especially so if the services sector — which accounts for about two-thirds of Singapore’s gross domestic product (GDP) and employment — continues to slow down.

Some economists are surprised that the services sector grew by only 1.1 per cent year-on-year, which is a slight dip from the 1.2 per cent growth in the flash estimates released a month earlier. 

“The services cluster, a traditionally stable engine for the Singapore economy, is waning,” Mr Seah noted. 

Among the specific clusters in the services sector, he was surprised by the mere 0.5 per cent year-on-year growth in business services. 

“This sector tends to be predominantly more domestic-driven. You would expect external-oriented sectors to bear the brunt (of the slowdown). But a more domestically driven sector is also pulling back. Business confidence has deteriorated sharply,” Mr Seah said.

Unemployment and retrenchment figures are still on the low side, but Mr Tan believes that the numbers will increase and the full impact to be seen only in 2020, given that the labour market is often a lagging indicator of the health of an economy. 

Mr Seah added that policymakers need to stay vigilant and work closely with companies that could be struggling in order to mitigate the risk of retrenchment. 

Other economists, however, are more positive, believing that the services sector is able to sustain its current momentum and therefore continue propping up Singapore’s economy and the labour market. 

Mr Barnabas Gan, an economist with United Overseas Bank, said that the 5.2 per cent year-on-year growth in the finance and insurance cluster, which is part of the services sector, is surprisingly on the upside. 

“Despite a lacklustre manufacturing sector, the services sector is shouldering the bulk of growth and cushioning the downside of manufacturing,” he added. 

He also expects growth in the services sector to pick up in the later half of this year, due to its slower growth rates last year.

MONETARY POLICY REVIEW

While there was some market talk that the Monetary Authority of Singapore (MAS) may call for an unplanned policy review, the economists interviewed by TODAY were not surprised that the central bank has no intention to hold one beyond the scheduled ones that are held twice a year. 

This was confirmed by MAS’ deputy managing director of economic policy Edward Robinson during the MTI media briefing on Tuesday. 

Mr Robinson also said that the central bank’s policy stance is “unchanged,” with core inflation expected to average at between 1 and 2 per cent.

The economists explained that Singapore is not at risk of a recession yet despite the gloomy economic data released on Tuesday.

Another reason for MAS to stick to its bi-annual schedule is to instil market confidence.

Mr Gan said that if there were an unplanned policy intervention right now, it would require strong mitigating factors.

After the central back changed its monetary policy cycle in 2003, the only time it made an off-cycle adjustment was in January 2015. At the time, MAS’ justification for the policy move was because inflation forecasts had changed significantly since the October 2014 review. 

In response to queries from TODAY on what indicators MAS uses to determine whether an unplanned policy move is necessary, its spokesperson said: “MAS continuously monitors incoming economic data and takes these into account to assess Singapore’s inflation and GDP growth outlook”. 

The economists agreed that there is no need for MAS to go into “recession mode”, but there is room for its monetary policy to be more accommodative to stimulate and encourage economic growth. 

Furthermore, inflation is also low, with June’s core inflation coming in at 1.2 per cent, slightly lower than the 1.3 inflation increase in May. 

They foresee that MAS may ease its monetary policy in the upcoming October review, which basically means that the slope of the Singapore dollar policy band would become gentler.

Ms Selena Ling, OCBC bank's head of treasury research and strategy, said that the easing of monetary policy has “become mainstream globally”, noting that the Federal Reserve, the United States’ central bank, had cut rates this month — the first in a decade — to insure against downside risks from weak global growth.

The central banks of New Zealand, India and the Philippines also surprised markets with their more-than-expected interest-rate cuts last week.

With the market here expecting monetary policy to ease, the question is more of how much MAS would adjust, Ms Ling said. 

MANUFACTURING SECTOR DRAGGING GROWTH

Unsurprisingly, the manufacturing sector continued its contraction from the previous quarter. 

Year-on-year, it declined 3.1 per cent in the second quarter — a sharper decline compared to the 0.3 per cent contraction in the first quarter. 

It used to be a key driver of Singapore’s economy two years ago, but economists are not surprised by the continued shrinking of this sector, saying it is now the main drag on the economy. 

The sector is doubly hit by the maturing of the global technology cycle, as well as the US-China trade tensions.

Within the manufacturing sector, the electronics and precision engineering clusters were the main drivers for its decline. 

The lower output can be attributed to slower demand for electronics exports from Singapore’s overseas markets, as seen in Tuesday’s sluggish non-oil domestic exports. 

Electronic exports, in particular, fell 26.9 per cent over the same period, while non-electronic exports declined by 10.5 per cent.  

Economists told TODAY that the figures for the non-oil domestic exports have dashed any hopes for a recovery in the second half of this year. 

Ms Yong Yik Wei, director of MTI’s economics division, expects the manufacturing sector to contract for the full year.

However, she emphasised that the fall in the sector is mainly due to a downswing in the tech cycle for the electronics and precision engineering clusters, which make up about one-third of the manufacturing sector. 

She pointed out other clusters in manufacturing which are still fairly strong, such as aerospace and food and beverage manufacturing.