UPDATE 2-Singapore Q3 GDP contraction, weak exports reinforce recession risk

(Adds analysts’ comments, Singapore dollar reaction, context)

* Singapore sees 2016 GDP growth 1-1.5 pct vs 1-2 pct prev f’cast

* Q3 GDP -2.0 pct qtr/qtr annualised vs initial estimate -4.1 pct, Reuters poll -2.5 pct

* Q3 GDP +1.1 pct y/y vs initial estimate +0.6 pct

By Masayuki Kitano and Jongwoo Cheon

SINGAPORE, Nov 24 (Reuters) - Singapore’s government slashed its economic growth and exports forecasts for 2016 after the economy contracted in the third quarter, reinforcing the risk of a recession amid fresh uncertainty around global trade under U.S. President-elect Donald Trump.

Exports in much of Asia’s trade-reliant economies have crumbled in the past year due to stubbornly weak external demand, with Singapore’s manufacturers one of the hardest hit as growth in regional locomotive China cooled.

The trade-reliant economy is expected to grow 1.0-1.5 percent this year, compared with the previous projection of 1.0-2.0 percent, the Ministry of Trade and Industry said in a statement on Thursday.

The economy shrank 2.0 percent in the July-September period from the previous three months on an annualised and seasonally adjusted basis, the ministry said, better than the government’s initial estimate on Oct. 14 of a 4.1 percent contraction.

The external and domestic headwinds have raised the risk of a recession in Singapore, and heightened the chance of fiscal or monetary stimulus over the near term, analysts said. The central bank held its exchange-rate based policy unchanged in its October meeting, though some analysts say a deteriorating growth outlook could force it to ease again at its next review in April 2017.

ANZ economist Weiwen Ng said the risk of a recession in the current quarter cannot be ruled out, though that is not ANZ’s core view at this stage.

The higher U.S. yields and stronger dollar seen after the U.S. election could divert capital flows away from Asia and lead to higher domestic interest rates and tighter financial conditions in Singapore, he said.

“Therein lies the risk of a possible sharp downturn in Q4.”

MTI’s central view is that the economy will avoid a technical recession in the fourth quarter, its Permanent Secretary Loh Khum Yean told reporters, adding that GDP is expected to grow 1.0 to 3.0 percent in 2017.

The Singapore dollar hit a 10-month low of S$1.4365 versus a broadly strong U.S. dollar on Thursday.


All the same, there are few signs of a pick up in Singapore.

With Trump’s Nov. 8 election victory and his campaign promise to tear up international trade deals threatening to shatter a fragile global recovery, Singapore’s open economy remains among some of the most vulnerable markets to U.S. protectionism.

Domestic consumption in the affluent city-state has also remained anaemic, with entire floors at some central shopping malls empty.

Nomura economist Brian Tan said an added risk is that Trump’s policies would boost fiscal spending and prompt the Federal Reserve to raise U.S borrowing costs at a faster pace than previously expected.

Higher U.S. rates “feeds through into domestic interest rates in Singapore,” Tan said. “So obviously that’s going to raise debt servicing burdens, and that’s clearly not great for the economy at this stage,” said Tan, who expects Singapore’s economy to grow 1 percent in 2017.

Activity in the manufacturing sector declined 9.1 percent in the third quarter from the prior three months, the latest data showed, better than an initial estimate of a 17.4 percent contraction.

The sector’s outlook remained bearish with exports in October sharply down. (Reporting by Masayuki Kitano and Jongwoo Cheon; Editing by Shri Navaratnam)