BloombergHONG KONG (Bloomberg) — An unexpected contraction in Singapore’s economy in the second quarter sent a warning shot to the world economy as simmering trade tensions wilt business confidence and activity.
Gross domestic product in the export-reliant city state shrank an annualized 3.4 percent in the quarter from the first three months of the year. That compared with growth of 3.8 percent in the first quarter and forecasts for a 0.5 percent expansion in a Bloomberg survey of economists.
Like South Korea’s economy — which already contracted in the first quarter — Singapore is often held up as a bellwether for global demand given its heavy reliance on foreign trade. Across Asia and Europe, factory activity shrank in June while the U.S. showed only a meager economic expansion.
“Singapore is the canary in the coal mine, being very open and sensitive to trade,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte in Singapore. The data “points to the risk of a deepening slowdown for the rest of Asia.”
Asia is the world’s growth engine and contributes more than 60 percent of global GDP, according to the International Monetary Fund. Rob Subbaraman, head of global macro research and co-head of global markets research at Nomura Holdings Inc, concurred, saying the “large downside GDP miss does not bode well for the rest of Asia.”
Singapore’s complicated integration in regional and global supply chains makes it vulnerable to a slowdown in world growth and tariff wars. Exports have already taken a big hit over the past few months, with shipments plunging in May by the most since early 2013.
“I thought the numbers would be bad, but this is ugly,” Chua said. “The whiff of a technical recession is real. We thought it might be shallow, but the risk now is that it might be deeper.”
The Singapore dollar fell as much as 0.1 percent to 1.3588 against the U.S. dollar after the data was released.
Aside from trade tensions, a cooling technology boom is weighing on the outlook. About 40 percent of Singapore’s exports are integrated circuits alone, according to Tuuli McCully, head of Asia-Pacific economics at Scotiabank in Singapore.