Is Singapore Going Through a Recession? Wait, What’s a Recession?
Recently, there’s been a small slew of news reports about Singapore’s economy with big, scary words like “economy slowdown”, “ worst performance since 2012” and — most alarming of all — “recession”.
But with all these articles swirling around, it’s difficult to get a handle on exactly how badly Singapore’s economy is doing. Some reports say we had 0.1% year-on-year growth in Q2, while other economists predict 0.7% or even 0-1% growth — huh?
And then DPM Heng Swee Keat came out to say that we’re not “expecting a full-year recession (yet)”, which sounds very much like we are in a recession after all.
So what’s the deal? What on God’s green earth is a recession, and are we actually in one?
What does “recession” even mean?
There’s no official body that governs the definition of “recession”, which means the term, unfortunately, can sometimes be bandied about for political or fear-mongering purposes.
Here’s what the Oxford English Dictionary says:
“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
A decline in GDP over at least 6 months? That seems pretty straightforward.
- Not only does there need to be a decline in GDP, the decline should be significant
- Apart from GDP, you would also see declines in 4 other indicators: employment, income, manufacturing and retail sales
- Declines in these 4 indicators (which can be measured any time) are usually detected before a fall in GDP (which is measured quarterly)
So even without a 6-month drop in GDP, a country may be considered to be in recession if there are drops in the 4 indicators above.
Going by Singapore’s recent wave of retrenchments, the widely-reported slowdown in manufacturing, and the fact that our retail sales have been crappy for quite some time…. Yes, it would definitely seem like Singapore is at least on the verge of recession, if not already completely submerged in one.
Why do recessions happen though?
The very idea of a recession may seem apocalyptic. Even if you didn’t think so, both the popular media and your friendly neighbourhood kopitiam uncles will do their best to convince you that the end is nigh.
But if you’ve studied economics, recessions are actually part of the normal economic cycle and don’t necessarily indicate that there’s something wrong with the economy.
For background, the general trend for most countries’ economies is always upwards — it’s normal to become more prosperous and productive over the long term. But in the short term, there are fluctuations, so there are always periods when a country’s economy will slow down or even decline, i.e. go into recession.
These are typically brought on by events not entirely within the regular person’s control. For example, the big financial crisis and subsequent recession in 2008 was famously brought on by the collapse of Lehman Brothers (and other major banks) in the US.
The upcoming (or current?) recession in Singapore is said to be due to the US-China trade war. Unfortunately, being vulnerable to these faraway disputes is part and parcel of an export-based economy like ours.
If it’s any consolation to you, most economies recover from recessions in 1 or 2 years and then go back to the usual upwards trend.
Nonetheless, there are many lives that are irrevocably and painfully changed in every recession. Entire companies shut down, whole teams get laid off, blue chip stocks suddenly dip — it’s definitely a painful time for most of us.
But 0.1% GDP growth is technically positive! It’s not that bad right?
Nice try. That’s kind of like when you got your report book in school, and tried to argue with your parents that “D is still a pass”.
Singapore’s economy has traditionally done extremely well, with annual GDP growth rates along the lines of 9% or 10% from independence in 1965, although there were dips in the 1997 and 2008 financial crises, and the global recession in the early 2000s.
Since the mid-2010s, though, our annual GDP growth has slowed down significantly, more like 3% to 4% instead. This year, Singapore’s GDP hit a new low, as these graphs show:
OK, so it’s happening… What should we expect?
For a start, a recession is usually synonymous with retrenchment and unemployment. This is because businesses aren’t making as much money as they need to, so naturally they have to “reduce headcount” to lower their costs of operation.
During the 2008 financial crisis and recession, DBS famously let go of 900 people, while numerous companies cut wages and even forced staff to go on leave to reduce their costs. (Note that 2008 was an exceptionally bad recession — even Temasek Holdings lost money!!! — and I doubt the upcoming one will be as bad.)
It’s not just the currently-employed who will be affected by the lousy job market though.
Students on the verge of graduation might also find it difficult to get employed fresh out of school, too. Business owners will also feel the pain of making ends meet; it’s no surprise that many businesses do go bust during a bad recession.
The newly-unemployed may find themselves having to give up their homes if they’re unable to pay off their mortgage. Downsizing homes is common during a recession. Both my parents were retrenched in the 2008 recession, and we sold the family home to move to a smaller place.
Meanwhile, investors tend to lose confidence in blue chip listed companies during a recession, especially those who are visibly hit. Therefore, the stock market usually declines into a bear market, with share prices drooping as people let go of their stocks
Is there any silver lining to a recession?
One oft-cited upside of a recession is that it usually curbs inflation, but unluckily for us, inflation is expected to rise in 2019, which only makes everyone more miserable.
Most Singaporeans who are hit by the recession will look to the government for a stimulus package to help tide us through the bad times.
In the 2008 recession, this consisted of $23.4 billion in spending, mainly on a “Resilience Package” to help laid-off Singaporeans find jobs, help struggling businesses and so on. Again, 2008 was a really bad recession, and we have no idea what the upcoming package (if any!) will be like.
Can you make money from a recession?
Although recessions are really shitty for most of us, there will always be people who manage to profit during these times.
I mentioned that stock markets will turn bearish, and this is an opportunity for risk-taking investors to buy shares while prices plunge. They then hold these stocks all the way until the market recovers, to sell them at a tidy profit.
The same goes for property. If you’re (miraculously) financially capable of affording a new home, deep in a recession may be a good time to buy as property prices are usually depressed.
In any case, if you are looking to profit from a recession, know that the risks are definitely real. You have no idea how long you’ll have to hold the asset for — it could be months or years — and the prices of whatever you invest in could continue to plummet for some time. It definitely takes guts of steel to do this.
How else should Singaporeans prepare for a recession?
With the looming threat of retrenchment, unemployment or “reduced” employment, it’s best to not feel too complacent about our careers at this point. Now is a good time to make yourself visibly useful at work, upgrade your skill set, pursue that side gig you’ve always wanted to try, and/or research other careers you might possibly be interested in.
Not saying it’ll happen to you, but you should definitely be prepared for your finances to take a hit.
Do review your financial portfolio and weed out any volatile investments and outstanding debts that you have right now. You should do your best to clear them while you can, before the recession really hits.
Now is also a good time to cut back on your spending and borrowing, while shoring up more cash in your emergency fund. The over-leveraged are the ones who will feel the most pain during a recession; don’t be one of them.
What’s your recession battle plan? Tell us what you think in the comments.