SINGAPORE – Prime Minister Lee Hsien Loong recently raised the likelihood of a global recession within the next two years.

Factors such as Russia’s invasion of Ukraine have clouded Singapore’s post-pandemic recovery prospects, with rising energy prices sinking Singapore by around S$8 billion a year, it said. he said at a May Day rally on Sunday, May 1.

Inflation will remain high and the main central banks are tightening their monetary policies. “Global growth will be weaker and there could be a recession in the next couple of years,” he added.

Singapore’s close ties to the global economy and its small size make it more susceptible to these “global headwinds”, he warned.

When the price of oil was around US$50 (S$69) a barrel, annual imports of crude oil and natural gas cost Singapore around S$30 billion a year.

TODAY spoke with analysts to learn more about the possibility of a recession and the key risk factors that could lead to it.


Analysts said one factor to watch is a sharp drop in global demand.

Ms Selena Ling, head of treasury and research at OCBC bank, said other key factors that could cause a recession include the Russian-Ukrainian war, China’s strict zero-Covid-19 regime, the high energy prices, global supply chain bottlenecks and tensions between the United States and China.

“(There are) so many things that can go wrong. Basically, they hurt business and consumer confidence, exacerbate imported inflation, cause central banks to accelerate monetary policy tightening, which can cause market indigestion and falling demand conditions as interest rates rise sharply and so on,” Ms Ling added.

Rounding out his remarks, Mr. Bernard Aw, an economist at Coface, a global credit insurance group, said that a sharp decline in consumer and business demand in Singapore’s key export markets, which includes China, Japan, the United States and major Southeast Asian countries, will be a key driver of recession.

Mr Aw, who analyzes and monitors Asian economies, said the sharp contraction in global demand could be due to several factors.

These include:

  • A sharp decline in China’s economic activity due to its Covid-19 crackdown and resulting disruptions to domestic supply chains
  • A European recession caused by energy supply shocks and strong inflationary pressures
  • Weakening US consumption and investment due to high inflation and sharp increases in borrowing costs

Analysts who spoke to TODAY said a recessionary scenario in Singapore would involve “an overly aggressive US Federal Reserve (Fed).”

The U.S. Fed monitors risks to the financial system and ensures that the system supports a healthy economy for American households, communities, and businesses, among other tasks.

Maybank Kim Eng economist Chua Hak Bin said: “A Fed that is too aggressive in killing inflation could lead to a recession in the United States between 2023 and 2024. Singapore is likely to follow this lead and slide into a recession in such an event.

“A recessionary scenario likely involves tightening and raising key Fed interest rates beyond 3.5%.”


Analysts have said a recession occurring next year is unlikely.

Dr Chua said: “Our Singapore recession model, which is based on the three-month to 10-year US yield spread, suggests that the probability of a recession over the next 12 months is only ‘about 6%.”

The US yield spread or duration gap is defined as the difference between the prices of three-month and 10-year US Treasury bonds and is considered a reliable indicator of future economic performance, due to the interdependent nature of bond prices, bond yields and interest rates. rates.

He added that China’s zero-Covid-19 measures and lockdowns or the Russian-Ukrainian war are not enough “as a shock to produce a recession in Singapore”.

In the event of a global recession, Singapore’s stock market will not be immune and “could fall 30-60% from its highs depending on the depth and duration of the recession”, said Dr. Shua.

Asked how Mr Lee could have arrived at the two-year prediction, OCBC’s Ms Ling said: ‘I don’t know how he got there, but the more the big central banks load their policy tightening , the risk of policy error is certainly increasing.It would really come down to how policy crunch and geopolitics materialize and develop from here.

Headline inflation is expected to top 4.5% to 5.5% this year, while core inflation is also expected to swing between 2.5% and 3.5% this year, which Ms Ling describes as “rather decent compared to last year’s meteoric growth”. .

Coface’s Mr. Aw said some factors that could shorten Mr. Lee’s two-year deadline include “rapidly deteriorating global demand conditions, coupled with an escalation of the Russia-Ukraine crisis, with the possibility of ‘an extension of the war, and soaring energy and food prices’.


Ms Ling warned that there is a growing risk of stagflation as growth momentum slows and inflation remains high and persistent.

Stagflation, which the world has not experienced since the oil shock of the 1970s, occurs when economic stagnation and inflation combine and it is a situation where an economy faces the twin challenges of economic growth slow and unemployment in the midst of rising inflation.

When asked what it would mean for stagflation to overlap with a recession, Mr Aw said: “Stagflation can also be a recession combined with high inflation. Economic output can stagnate or fall (thus leading to a recession) in a situation of stagflation.”

He added: “We should expect the possibility of stagflation in Singapore if the global economy falls into such a situation. (The country’s) use of the exchange rate as an instrument of monetary policy has, however, been effective. to keep inflation stable over the past four decades.”


Analysts told TODAY that one indicator that could signal a recession is approaching is the global energy bill.

Mr Aw said: “In the past, whenever the global energy bill exceeded around 7-8% of gross domestic product (GDP) for a year, a recession tended to ensue within the next one to two years. .”

Other warning signs include sharp corrections in asset prices, accompanied by a rapid loss of business and consumer confidence, Ms Ling said. Sharp corrections in asset prices could, for example, dampen consumer spending.

The impact of a recession on Singapore is the possibility of job losses or greater employment uncertainty.

Mr Aw said: “This recession, if it materializes, will likely be accompanied by higher inflation, which erodes consumers’ purchasing power and imposes economic hardship on the people.”

As for Ms Ling, she said: “A recession would hurt the average Singaporean by potentially causing job losses, wage cuts, belt tightening, delays (capital expenditure – money spent on productive assets like machines, computers) and weigh on trust levels.”