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(Bloomberg) — An unexpected contraction in Singapore’s economy and a slump in China’s exports sent a warning shot to the world economy as simmering trade tensions wilt business confidence and activity.
Gross domestic product in export-reliant Singapore shrank an annualized 3.4% in the second quarter from the previous three months, the biggest decline since 2012. China trade figures showed exports fell 1.3% in June from a year ago and imports shrank a more-than-expected 7.3%.
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. China’s quarterly GDP numbers on Monday are expected to show a clear weakening in the economy.
“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.”
Across Asia and Europe, factory activity shrank in June while the U.S. showed only a meager economic expansion. Asia is the world’s growth engine and contributes more than 60% of global GDP, according to the International Monetary Fund.
Singapore’s complicated integration in regional and global supply chains makes it vulnerable to a slowdown in world growth and tariff wars. Exports — which amount to 176% of GDP — 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.”
Singapore isn’t expecting a full-year recession yet but the government is “monitoring the situation closely,” Finance Minister Heng Swee Keat said in a Facebook post. The government has said it will likely revise its growth forecast range of 1.5%-2.5% for this year.
The Singapore dollar fell as much as 0.1% to 1.3588 against the U.S. dollar after the data.
A global slowdown and the U.S.-China trade tensions are rippling across the region. A restart to U.S.-China trade negotiations has done little to convinceeconomists that the global economy can recover. Morgan Stanley analysts last month cut both their 2019 and 2020 growth forecasts by 20 basis points each, to 3% and 3.2%.
“With a resolution of the U.S.-China trade conflict and a rebound in the global tech cycle both still elusive, the downside risks to growth in the region are mounting,” said Krystal Tan, an economist at Australia & New Zealand Banking Group Ltd. in Singapore.
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