Singapore is the most vulnerable and will be the first to be hit in Southeast Asia if the US goes into recession, says Maybank’s Chua Hak Bin.

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SINGAPORE — Asia won’t get off scot-free if the US falls into recession, but some countries in Southeast Asia 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 maintains its hawkish stance on rate hikes.

The US has already reported back-to-back quarters of negative growth in the first two quarters of 2022 – in what some see as a “technical” recession. Still, there is little consensus on when a full-blown recession might strike.

Economists told CNBC that Singapore and Thailand will most likely be hit first if the US slips into recession.


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

“I guess [it] Singapore will be first,” he said when asked which economies in Southeast Asia will be hit first if the US falls into recession. The island nation is likely to be first because of its export dependency and its small and open economy, Chua said.

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

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

1. Connected

The country’s GDP growth has “historically been more closely correlated with US business cycles” due to its export-oriented economy, Maybank said in a late August report.

Singapore does not have a large domestic market and relies heavily on trade services for economic growth, Chua said. These include shipping activities and cargo operations.

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

Singapore’s “correlation and dependence on foreign demand is very high,” Chua said. If the US slips into recession, this “dependency and causality” will hit the more export-oriented economies, he added.

Singapore is strongly connected to the rest of the world and a “shockwave” in any one country will definitely have a ripple effect across the city, Irvin Seah, senior economist at DBS Group Research, told CNBC.

Still, he doesn’t expect Singapore to fall into recession this year or next.

The Maybank report states that if the US slides into recession, the downturn will be “shallow rather than deep.”

However, Chua said the US could potentially face a “prolonged” recession and whether or not Singapore is also headed for a protracted recession will depend on China’s Covid reopening as China is the city-state’s biggest trading partner.

2. Export-oriented economy

Singapore is a big exporter of electrical machinery and equipment, but output in its electronics cluster fell 6.4% yoy in July, data from the Economic Development Board showed.

Production in the semiconductor sector fell 4.1%, while other electronic module and component segments shrank 19.7% on “lower export orders from China and China.” [South] Korea,” said the EDB, a government agency of 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 10-member Association of Southeast Asian Nations. “Because Singapore is so dependent on exports, [it] will feel it.”

3. Tourism

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

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


Thailand will also be among the first to be hit if the US slips into recession, economists predicted, speaking to CNBC.

1. Tourism

The country relies heavily on tourism for its economic growth. Spending on tourists accounted for about 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 the World Bank.

Only about 428,000 foreign tourists arrived in 2021 and the economy grew by just 1.5% – one of the slowest in Southeast Asia, according to Reuters.

Thailand could be next to fall into recession after Singapore, Chua said. However, a “wild card” will be the timing of China’s reopening – which could determine whether Thailand’s economy is “back to full swing,” he added.

Thailand's lifting of Covid curbs will boost travel and service industries: hospitality businesses

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

“As long as Chinese tourists don’t return, Thailand will keep fighting. Growth was weak, inflation high, [and] The Thai baht is under pressure.”

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

2. Inflationary pressures

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

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

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

He pointed out that Indonesia and the Philippines would likely be less affected by a possible US recession due to their “domestically focused economies”.

“Indonesia and the Philippines were better insulated from the slowdown in foreign 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 in Singapore and Thailand during the 2008-2009 global financial crisis.

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