SINGAPORE (Sept 19): Singapore is forecast to dip into a technical recession in the current quarter ending Sept 30, say economists at Oxford Economics.

The export-oriented city-state is bracing for its economy to be hit the hardest across the region amid spillovers from the US-China trade war, slower Chinese domestic demand and a downturn in the global electronics cycle, according to the latest ICAEW report published Thursday.

The quarterly Economic Update: South-East Asia review is produced by advisory firm Oxford Economics.

Elsewhere in Southeast Asia, economic growth is expected to moderate to 4.5% for this year, down from 5.1% in 2018, following another round of tariffs and trade restrictions between the US and China.

The downward trend comes as economic growth in the region contracted to 4% in 1H19, from 4.5% in 2H18.

“We expect the challenging external conditions to continue weighing heavily on the overall growth across South-East Asia economies, as well as on regional trade flows”, says Mark Billington, regional director for Greater China and Southeast Asia at The Institute of Chartered Accountants in England and Wales (ICAEW).

He adds trade-dependent economies such as Singapore, Indonesia, the Philippines and Thailand have been the most vulnerable to the ongoing global economic uncertainties.

Singapore, in particular, has been the worst hit in the region. The affluent city-state saw its Gross Domestic Product (GDP) contracting 3.3% q-on-q in 2Q19, while the other three countries have been logging below potential growth.

Meanwhile, Malaysia and Vietnam have outperformed the region, with a modest deceleration in export growth and resilient domestic demand.

Vietnam has been a key beneficiary of the trade diversion from the trade war, and is forecast to grow 6.7% this year.

Myanmar, too, is on an upward growth trend, with expectations of GDP growth of 6.4%, buoyed by foreign investments in the areas of infrastructure, manufacturing and wholesale services and retail services.

The trade war has now resulted in slower Chinese domestic demand and a downturn in the global electronics cycle, which is causing the strain on manufacturing activity, exports and growth.

And central banks across Asean are responding by easing their monetary policy.

The economists expect Bank Indonesia and Bangko Sentral ng Pilipinas – the central banks of Indonesia and the Philippines – to lower rates in 4Q19 to 25 basis points, after having already lowered interest rates by 50bp earlier this year.

Thailand is also expected to cut rates by 25bp early next year.

Meanwhile, the Monetary Authority of Singapore is also expected to ease exchange rates, by shifting to a zero-appreciation bias in the Singapore Dollar Nominal Effective Exchange Rate, or S$NEER – the trade weighted baskets of currencies against the Singapore dollar, which has been a key policy tool for the MAS.