Technical data

Singapore and Thailand vulnerable to US recession, economists say

Singapore is the most vulnerable and will be the first in Southeast Asia to be hit if the United States falls into recession, says Chua Hak Bin of Maybank.

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SINGAPORE — Asia will not emerge unscathed if the United States falls into recession, but some Southeast Asian countries will be hit harder than others, economists warn.

The tug of war between inflation and recession in the United States continues as the Federal Reserve sticks to its hawkish stance on interest rate hikes.

The United States has already recorded two consecutive quarters of negative growth in the first two quarters of 2022 – what some consider a “technical” recession. Yet there is little consensus on when a full-fledged recession might occur.

Economists told CNBC that Singapore and Thailand would most likely be hit first if the United States heads into recession.


Singapore is “more vulnerable” to a U.S. recession compared to its regional peers because it is “very, very dependent,” said Chua Hak Bin, senior economist at Maybank.

“I suspect [it] will be Singapore first,” he said when asked which Southeast Asian economies would be hit first if the United States fell into recession. The island state is likely to be first due to its reliance on exports and small open economy, Chua said. .

Selina Ling, chief economist at OCBC Bank, agrees with this analysis.

“At first glance, I would suspect the more open and trade-dependent Asian economies as [Singapore]Taiwan and South Korea and possibly Thailand would be the usual suspects,” she said.

1. Interconnected

GDP growth in the country has been “historically more correlated” with U.S. economic cycles due to its export-oriented economy, Maybank said in a late August report.

Singapore doesn’t have much of a domestic market and relies heavily on trade services for its economic growth, Chua said. This includes shipping activities and freight operations.

The country’s trade-to-GDP ratio for 2021 was 338%, according to the World Bank. The trade/GDP ratio is an indicator of the degree of openness of an economy to international trade.

“Singapore’s correlation and dependence on external demand is very high,” Chua said. If the United States were to slide into a recession, this “dependence and causation” would hit the most export-oriented economies, he added.

Singapore is extremely connected with the rest of the world and a “shock wave” in any country is sure to have a ripple effect on the city, Irvin Seah, senior economist at DBS Group Research, told CNBC.

Still, he does not expect Singapore to fall into recession this year or next.

The Maybank report said that if the United States heads into recession, the slowdown “will likely be shallow rather than deep.”

However, Chua said that the United States could possibly face a “prolonged” recession and whether Singapore is also heading into a long-lasting recession or not will depend on whether China reopens from Covid since China is the largest partner. commercial city-state.

2. Export-oriented economy

Singapore is a big exporter of machinery and electrical equipment, but production in its electronics hub fell 6.4% in July from a year ago, according to data from the Economic Development Board.

Production in the semiconductor sector fell 4.1%, while other electronic module and component segments fell 19.7% due to “lower export orders from China and [South] Korea,” said the EDB, a government agency under Singapore’s Ministry of Trade and Industry.

“China is the biggest export market for many ASEAN countries… But exports to China have been terrible,” Chua said, referring to the Association of Southeast Asian Nations. East, composed of 10 members. “Because Singapore is so heavily dependent on exports, [it] feel it.”

3. Tourism

Seah, the DBS economist, said he “isn’t ruling out the possibility” that Singapore will see at least a quarter of negative quarter-on-quarter growth. However, economic conditions are normalizing for the country, he added.

“We are definitely much stronger today than during the period of global financial crisis,” he said.


Thailand will also be one of the first to be hit if the United States falls into recession, economists who spoke to CNBC predicted.

1. Tourism

The country depends heavily on tourism for its economic growth. Spending by tourists accounted for around 11% of Thailand’s GDP in 2019 before the pandemic. The country welcomed nearly 40 million visitors that year and generated more than $60 billion in revenue, according to World Bank data.

There were only around 428,000 foreign tourist arrivals in 2021 and its economy grew just 1.5%, one of the slowest in Southeast Asia, according to Reuters.

Thailand could be the next to fall into recession after Singapore, according to Chua. However, a “wild card” will be when China reopens – which could determine whether Thailand’s economy returns “in full swing”, he added.

Lifting of Covid restrictions in Thailand will boost travel and service industries: hotel business

Chinese tourists have not returned to the Southeast Asian country and that has left Thailand’s economy in “an even more precarious state”, said DBS Bank’s Seah.

“Until Chinese tourists return, Thailand will continue to struggle. Growth has been weak, inflation is high, [and] the Thai baht is under pressure.”

The Thai baht is currently hovering around 36 baht to the US dollar and is down 20% from three years ago, before the pandemic.

2. Inflationary pressure

Thailand’s inflation rate hit a 14-year high of 7.66% in June, according to Refinitiv data.

The Bank of Thailand has only raised interest rates once since 2018.

“Headline inflation is very high in Thailand, but core inflation is not that high, by correlation it’s not that high. Of course, growth has been much lower, so they don’t feel no urgency to tighten so aggressively,” Maybank’s Chua said. .

He pointed out that Indonesia and the Philippines would likely be less affected by a possible U.S. recession because of their “domestically oriented economies.”

“Indonesia and the Philippines were more immune to the slowdown in external demand and the US recession, with both economies continuing to expand even in 2008/09 during the global financial crisis,” the Maybank report said.

According to World Bank data, GDP growth in Indonesia and the Philippines was higher than that of Singapore and Thailand during the global financial crisis from 2008 to 2009.

– CNBC’s Abigail Ng and Weizhen Tan contributed to this report.