What is recession and is it happening soon?

A recession is a significant decline in overall economic activities that lasts more than a few months (NBER, 2023).  

Currently, the global economy is facing challenges from the Russia-Ukraine conflict, global interest rate hikes, US-China tensions, and the 2023 banking crisis, to the recent OPEC+ surprise move that significantly affects oil prices. All these events pose a significant threat to the already fragile economy, pointing toward a potential recession in 2023. 

Where can we go to protect our capital?

During a recession, the overall market sentiment tends to be negative. It’s crucial for investors to find a secure place to protect their capital while seeking some level of capital growth as well. 

There is one country in Asia that has historically fared better than its neighbors during recessions. 

That country is SINGAPORE! 

Past recession in Singapore compared to other countries

Here’s the past GDP Growth and unemployment rate in Singapore during the past recessions.

Table 2: Singapore’s GDP Growth and Unemployment Rates in the past recession period.

While it may not be wise to draw conclusions from the data of just one country, it's worth noting that Singapore has historically managed to maintain a relatively healthy unemployment rate during past recessions. Typically, economists consider a minimum unemployment rate of 4-5% to be healthy. With a low unemployment rate during past recessions, it suggests that while Singapore's GDP growth may have declined, the majority of its citizens were still able to retain their jobs.

To better understand the impact of past recessions and how well Singapore has fared, we have created a line chart comparing the GDP growth and unemployment rates of other developed countries since 1990 (image 1). The grey areas on the chart indicate the corresponding recession periods.

Image 1: GDP Growth of Hong Kong, Japan, Singapore, United Kingdom, and United States since 1990.(Data taken from: The World Bank)

Image 1: Unemployment Rates of Hong Kong, Japan, Singapore, United Kingdom, and United States since 1990.(Data taken from: The World Bank)

It is worth noting that Singapore's GDP Growth did not dip as badly as other Asian countries. In recent recessions, Singapore's GDP Growth was better than the United Kingdom and almost similar to the United States. Additionally, Singapore's unemployment rates did not fluctuate as much as other countries during recessions.

Another important thing to highlight is that Singapore often recovers faster from the impact of recession compared to countries as well. The data indicate that Singapore's GDP Growth and unemployment rates typically rebound more rapidly and to a greater extent than other nations. 

How did Singapore manage to outperform other markets in the past recession?

Singapore owed its success to its government which implemented decisive policies that were tailored to the country's needs during recessions. These policies include reducing employers' Central Provident Fund contribution, offering tax rebates, promoting employees’ skills training, providing direct assistance to households, increasing government spending on education, healthcare, and infrastructure, revitalizing public housing estates, and many more. 

These measures have been proven to be effective in mitigating the impact of past recessions, as evidenced by Singapore's outperformance of other markets.

Can Singapore continue its legacy in the year 2023?

Despite the challenges in play for the year 2023, Singapore has shown resilience so far, as evidenced by the continued success of its banking industry. 

While many economists predict a recession may occur this year, Singapore's Ministry of Trade and Industry (MTI) has maintained a growth forecast for 2023 of 0.5% to 2.5% and has even reported an improved external demand outlook since November 2022. 

Moreover, economists suggest that Singapore may be able to avoid a recession in 2023, although growth across sectors is expected to be uneven. Their updated GDP growth forecast for Singapore remains within the official range of 0.5% to 2.5%, based on a recent survey published by the Monetary Authority of Singapore (MAS) (Bloomberg, 2023). 

Based on historical and current data, there is reason to believe that Singapore can continue to avoid a recession and maintain economic growth.

Our final thoughts 

Looking at Singapore's track record, it is evident that the country has consistently outperformed many other nations during and after recessions. Based on current data, the Singapore government and economists are confident that the country will continue to thrive in the current recessionary environment. Therefore, we believe that investors can still consider Singapore as a safe haven to invest their capital in a recessionary environment. 

Want to venture into a market that has global exposure and diversify your portfolio?

Open a trading account now with MQ Trader to start trading in SGX! 

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