Likelihood of Economic Recession

Mr Seah Kian Peng asked the Minister for Trade and Industry (Trade) given the weak economic indicators for the past several months, including rising unemployment, slower growth projections and a weak global economic outlook, whether a recession is imminent and, if so, what are some of the measures that the Government is contemplating.

Mdm Speaker, as a small open economy, Singapore's growth prospects are affected by developments in our external environment. Since the Global Financial Crisis, global growth has been weaker than expected and the International Monetary Fund (IMF) has been downgrading its global growth forecast almost every year.

In the near term, the global economic outlook is expected to remain weak. Investment demand in key advanced economies remains sluggish, while China's growth continues to moderate as it restructures its economy. Low oil prices have also affected the growth prospects of oil exporters, including those in the region. At the same time, global trade flows have been weak, in part due to the sluggish global growth, as well as in-sourcing trends in economies like China. More recently, the UK's vote in June to leave the European Union has dampened and added uncertainties to the global growth outlook.

So, against this backdrop, growth in the Singapore economy has slowed, from 4.7% in 2013, to 3.3% in 2014 and 2% in 2015. While growth came in at 2.1% in the first half of 2016, it is likely to weaken in the second half of this year. First, externally-oriented services sectors, such as finance and insurance, and wholesale trade, have slowed and could continue to face external headwinds. Second, although manufacturing output saw a pick-up in the second quarter, it has shown signs of weakening on the back of sluggish external demand. Low oil prices have continued to dampen the performance of firms in the marine and offshore engineering segment, as well as those in the precision engineering cluster that support the global oil and gas industry. In line with the weakness seen in the manufacturing sector, non-oil domestic exports (NODX) contracted over the July to August period. Third, domestically-oriented sectors, such as food services and real estate, are likely to remain weak.

Notwithstanding the general slowdown in growth, there are bright spots in the economy. Tourism-related sectors, such as accommodation, have benefited from the recovery in tourist arrivals. Growth in "other services industries" and the information and communications sector is also expected to remain resilient, supported by growth in the education, health and social services, as well as the IT and information services segments respectively.

On balance, MTI expects growth in the second half of the year to come in lower than the 2.1% achieved in the first half of this year. For the full year, MTI's forecast remains at 1% to 2%. However, given the weakness seen in recent incoming data, such as the NODX data, growth may come in at the lower end of the range. MTI will be releasing the advance estimates of third quarter GDP growth on 14 October and the updated growth forecast for 2016 in November.

As the global economic situation remains fluid, the Government will continue to monitor the situation closely and stands ready to respond in the event of a downturn. Depending on the nature and severity of the downturn, the Government is prepared to consider introducing a range of contingency measures, which could include broad-based as well as sector-specific measures. Companies adversely affected by the slowdown can tap on assistance measures that are already put in place.

For instance, as part of Budget 2016, the Government introduced the SME Working Capital Loan scheme to help address SMEs' cash flow concerns and growth financing needs. In view of the challenging conditions faced by our companies in the marine and offshore engineering segment, the Government has also deferred the Foreign Worker Levy increases for the marine sector for one year.

Given the sluggish economic conditions and domestic restructuring, unemployment and redundancies have risen slightly. The Government will work with our tripartite partners to step up efforts to help our displaced workers. These include various career and employment support schemes under SkillsFuture and Adapt and Grow initiatives. Minister Lim Swee Say will be elaborating on these efforts later on.

Despite the global headwinds, it is important that we press on with our efforts to steer our economy towards a more sustainable growth path driven by productivity and innovation. We must continue to transform our industries and create good jobs for Singaporeans over the longer term. Minister Iswaran will be elaborating on some of the efforts in these areas as well.

I thank the Minister for his response. Given the sombre outlook and from my chat with my friends in various businesses, I think the outlook is one of great uncertainty. There seems to be very few spots of positive news. And from the consumers' side, looking at the various reports, consumer confidence is at an all-time low. So, when I put these two together, for many of us, we feel that a recession is imminent.

My question to the Minister is: do we wait for that to come or do we try to put some measures in place to forestall these dark clouds that I see coming?

Mdm Speaker, as I have mentioned just now, our baseline projection is not an outright recession, but we cannot rule out the possibility that the economy will experience some quarters of negative growth on a quarter-on-quarter basis. But, overall, we expect our economy to still grow at between 1% and 2%, albeit on the lower end of the projection.