By Chen Lin

SINGAPORE (Reuters) -Singapore’s economy narrowly escaped a recession in the second quarter as global demand weakened and China’s slowdown dragged on trade flows, leading some economists to cut their growth forecasts for the year.

The Southeast Asian economy grew a seasonally adjusted 0.3% quarter-on-quarter, following a 0.4% contraction in the first three months, preliminary government data showed on Friday. Four economists with quarterly estimates had forecast growth of 0.3% in a Reuters poll.

“I don’t think we are out of the woods completely. It is still a half full half empty kind of situation” OCBC economist Selena Ling said, adding she expects the central bank to make no changes to monetary policy in a scheduled review in October.

She said that while Singapore had escaped a technical recession for now, there was a possibility that final GDP figures for the second quarter could be revised lower due to recent signs of softening growth in China.

China’s reopening had fuelled hopes for a sustained recovery in commerce and tourism for the region, especially Singapore’s export-dependent economy, but demand has weakened in the wake of higher interest rates and strong inflationary pressures.

On an annual basis, the economy expanded 0.7% in the second quarter, data from the Ministry of Trade and Industry showed. That compared with 0.4% growth in the prior quarter and a 0.6% expansion forecast in a Reuters poll.

Barclays economist Brian Tan said it was services activity that led GDP back into expansion, though barely. He cut his full-year forecast to 1.0% from 1.5%.

Tan expects the government to downgrade its forecast because of weak data in the past few months while the central bank maintains policy.

Capital Economics said in a note the economy remains weak and with inflation slowing, monetary policy will likely be loosened in October.

The ministry has projected GDP growth of 0.5% to 2.5% for this year down from 3.6% in 2022.

Meanwhile, the Singapore dollar and benchmark share index made small gains on Friday, extending sharp rises a day earlier as global markets rallied and the U.S. dollar fell.

In May, the government said it did not expect a technical recession – defined as two consecutive quarters of contraction – this year but acknowledged that the external demand outlook for the rest of the year had weakened.

Industrial output and exports have fallen for eight straight months, raising the risk of a prolonged downturn.

Singapore’s inflation had remained elevated in the first half of this year, but authorities have said core prices should moderate further in the second half.

The Monetary Authority of Singapore left its policy settings unchanged in April, after tightening five times in a row since October 2021, reflecting concerns over the city-state’s growth outlook.

(Reporting by Chen Lin; Additional reporting by Tom Westbrook; Editing by Martin Petty and Jacqueline Wong)

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