Uh Oh! Singapore heads towards recession in 3Q12

The third straight month of tech decline in August is a major drag, warns CIMB.

Due to a larger drag from tech and a surprise fall in transport engineering, Aug’s MPI growth reading of -2.2% yoy fell well short of expectations.

According to CIMB, the third straight month of tech decline has probably pushed Singapore into a technical recession with a sequential decline of about 2% qoq annualised (-0.7% qoq in 2Q12). Yoy, 3Q12 GDP growth probably slowed from 2Q12’s 2% to 0.8-1%.

The advance GDP estimate is slated for release before mid-October. Growth concerns resurface as inflationary worries ease.

Here's more from CIMB:

Tech output slipped 5.3% mom SA, the third consecutive month of contraction. Yoy, despite the undemanding base of -26.4% yoy last Aug, tech output fell 7.3% yoy last month (-5% for Jun-Jul), in its 18th consecutive month of yoy decline. This sustained drag shaved 2% pts off Aug’s MPI growth.

 Advance 3Q12 GDP likely declined 2% qoq SAAR The government will release preliminary 3Q12 GDP no later than 12 Oct 2012.

Allowing for a modest rebound in Sep MPI and assuming the service sector grows at a similar clip as in 2Q11 (1% yoy), advance 3Q12 GDP should come in at 0.8-1% yoy (2Q12 GDP: 3.6%), outside the lower end of the government’s 2012 growth target of 1.5-2.5%. 

Singapore is likely to dip into a technical recession with a sequential decline of about 2% qoq annualised vs. -0.7% qoq in 2Q12. Given this acceleration in the pace of decline and the still-uncertain outlook for the coming 6-12 months, the MAS is probably going to switch to a more accommodative monetary policy when it releases its October monetary policy statement.

This means a gentler slope of appreciation for the trade-weighted S$NEER.