SINGAPORE (Oct 3): Amid a stagnating economy and low core inflation, the Monetary Authority of Singapore (MAS) is widely expected later this month to ease its monetary policy stance for the first time since April 2016.

But analysts at Maybank Kim Eng Research believe Singapore could have narrowly dodged a technical recession in 3Q.

“Third quarter GDP growth likely came in at a weak +0.2%, barely improving from +0.1% in 2Q,” says lead analyst Chua Hak Bin in a note on Wednesday.

Chua assigns a “low 20% possibility” to Singapore slipping into a technical recession in 3Q, which would mean MAS likely to take on “a more aggressive move” such as easing to a neutral bias with zero S$NEER appreciation.

The Singapore dollar nominal effective exchange rate, or S$NEER, is the trade-weighted basket of currencies against the Singapore dollar, which has been a key policy tool for MAS.

See: Economists expect easing of exchange rates as Singapore fights off technical recession

For now, on expectations of a “narrow escape” from a technical recession in 3Q, Chua expects MAS will likely reduce the slope of the S$NEER “slightly” from the current +1% appreciation path to +0.5%, but keep the width and centre of the policy band unchanged.

Still, Singapore’s economic outlook is far from rosy in the near-term.

Chua says the manufacturing sector is expected to remain in recession, recording a third consecutive negative quarter in 3Q, while trade-related sectors such as wholesale trade and transport & storage might worsen.

On the other hand, he says strength will likely be seen in the financial sector, as well as tourism-related and business services sectors. Construction growth is also likely strengthen in 3Q, even as service growth remain resilient.

Meanwhile, Singapore’s core inflation fell to a 3-year low in July and August, on the back of declining utilities cost.

“We expect core inflation (ex-private transport & accommodation) to remain soft, averaging +1.2% in 2019 (vs. +1.7% in 2018). Headline inflation is expected to average +0.7% in 2019 (vs. +0.4% in 2018), supported by the low base effects of COE prices,” Chua says.

At the same time, the economist adds that a softening job market is cooling wage cost pressures.

“The Manpower Group’s Employment Outlook Survey for 4Q is the most pessimistic in 2 years,” Chua notes. “The labour market is weakening, with employment rising by just 5,500 in 2Q19 (compared to 13,400 in 1Q19).”