SINGAPORE: Singapore’s economy unexpectedly contracted in the second quarter as exports continued to plunge amid a worsening global economy.

Gross domestic product in the trade-reliant city state declined an annualised 3.4% in the quarter compared with the first three months of the year. That compared with growth of 3.8% in the first quarter and 0.5% expansion forecast in a Bloomberg survey of economists.

Singapore’s heavy reliance on trade and its complicated integration in regional and global supply chains makes it vulnerable to a slowdown in world growth and tariff wars. Exports 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,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte in Singapore. "The whiff of a technical recession is real. We thought it might be shallow, but the risks now is that it might be deeper.”

The Singapore dollar fell as much as 0.1% to 1.3588 against the U.S. dollar after the data.

Manufacturing contracted an annualised 6% in the second quarter from the previous three months. Construction declined 7.6%, reversing a 13.3% expansion in the first quarter. The services industry shrank 1.5% in the second quarter.

What Bloomberg Economists Say

"As weak as Singapore’s standstill in 2Q GDP was, 2H will probably be much worse without a rapprochement in U.S.-China trade relations. Our forecast for a 0.2% year-on-year contraction in 2019 remains on course.” -- Tamara Henderson, Asean economist.

The government sees the economy expanding 1.5%-2.5% this year, compared with 3.1% in 2018. Officials are set to revise that projection in August, Minister for Trade & Industry Chan Chun Sing told Parliament this week, adding that Singapore was "well-placed to weather the storm” given its sound economic fundamentals, strong fiscal position, and progress in restructuring the economy.

A restart to U.S.-China trade negotiations has done little to convince economists that the global economy can skirt a slowdown through the end of 2019 and perhaps beyond. Morgan Stanley analysts last month cut both their 2019 and 2020 growth forecasts by 20 basis points each, to 3% and 3.2%.

Weaker economic growth may prompt the Monetary Authority of Singapore, the nation’s central bank, to keep policy unchanged in October or possibly ease. The MAS uses the exchange rate as its main tool and left policy settings steady in April.

"If by October, there is a recession and the U.S.-China trade war still fails to find a resolution, the MAS would probably have to ease policy,” Maybank’s Chua said.- Bloomberg