Singapore is showing signs of a slowdown but is a recession on the horizon for the Asian Manhattan?

 

Singapore is Southeast Asia’s pride: a rough-and-tumble story where an island with zero natural resources turned its fate to be the economic powerhouse is it today. In fact, its story of how it rose to prominence has fuelled many emerging markets today, hoping to achieve “Singaporeanization”.

But has it finally ran out of steam?

Having grown at breakneck speed that transformed it into an Asian Manhattan, Singapore is now bracing for a prolonged period of low growth, darkening the outlook for the city-state’s deeply indebted firms.

Singapore as a regional center for trade, oil services and wealth management is US$300 billion economy that punches above its weight and serves as a barometer of Asia’s other export-dependent economies.

China’s slowdown has affected Singaore’s manufacturers and shippers, the slump in commodity markets is taking its toll on its oil and gas sector, and a rise in bad debts and regulatory crackdown – particularly those linked to the financial scandal of Malaysian wealth firm 1Malaysia Development Berhad – has hurt its financial services industry.

The result is earnings forecast for Singaporean companies are falling at among the fastest rates in the world.

Projections for next year’s net income have come off by 4 per cent on average over the past three months versus a 0.2 per cent fall for the rest of Asia Pacific, according to data from Thomson Reuters.

Companies are also struggling with debt burdens that have ballooned since the financial crisis, even as bottom lines have shrunk.

Economists say the deteriorating earnings outlook raises the prospect that Singapore’s economy performs worse than policymakers expect, requiring further fiscal or monetary stimulus.

To be sure, Singapore is better placed than many to weather a slowdown. It is one of the most politically stable countries in the world, with hefty reserves and a top ranking in the World Bank’s ease of doing business index.

Even so, Singapore is showing signs its first recession in seven years is likely.

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