Coal-Mine Canary Singapore Is Starting to Cough

(Bloomberg) --

The canaries in the coal mine of the world economy are starting to cough.

Singapore said today that it’s economy unexpectedly shrank an annualized 3.4% in the second quarter. That was the worst performance since 2012 and confounded expectations for a 0.5% expansion.

Investors will be troubled because export-reliant Singapore is seen as a bellwether for global trade. The shock contraction is another sign that the conflict between the U.S. and China is upsetting international commerce. China itself is also suffering, with data showing exports fell 1.3% in June from a year ago and imports shrank a more-than-expected 7.3%.

“Singapore is the canary in the coal mine, being very open and sensitive to trade,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte in Singapore. The data “points to the risk of a deepening slowdown for the rest of Asia.”

The region is also being haunted by growing diplomatic feud between Japan and South Korea over Japanese export controls implemented last week, which curb specialty materials vital to South Korea’s tech giants. The dispute escalated on Friday, with Seoul calling for an international probe into Japanese claims that it allowed the export of sensitive materials to North Korea.

Charting the Trade War

The U.S. budget deficit widened by 23% to $747.1 billion in the first nine months of the fiscal year, as rising spending eclipsed a small bump in revenue from the Trump administration’s tariffs.

Today’s Must Reads

• Frustrating Trump | When it comes to Chinese purchases of U.S. agricultural goods, signs are growing that President Donald Trump won’t get what he wants anytime soon.
• EU-U.S. pact | German Economy Minister Peter Altmaier sees a 50% chance of the EU striking a trade deal on industrial goods with the U.S., possibly even this year.
• India-U.S. talks | Trade officials from the two nations have restarted talks amid uncertainty over issues ranging from data localization and India’s retail policies to recent tariffs imposed by the South Asian nation.
• Attack on EU-Mercosur deal | Ireland’s parliament expressed opposition to the European Union’s draft free-trade agreement with Mercosur in a non-binding vote that signals potential resistance to the deal in other parts of the EU.
• Changing trade flows | Agribusiness giant Cargill Inc. says the longer the trade war between the U.S. and China persists, the more permanent the shift in trade flows of agricultural products will become.

Economic Analysis

• China pain | The most worrying sign in China’s June trade data was another month of undershoot in imports, which underscores weakness in domestic demand.
• U.S.-U.K. deal | Senior members of Congress are saying that a proposed U.K. digital services tax would impair a potential post-Brexit trade deal between the two countries. 

Coming Up

• July 16: WTO Deputy Director-General Alan Wolff, European Union Trade Commissioner Cecilia Malmstrom among speakers at the Banque de France’s “Bretton Woods: 75 years later” conference in Paris.

--With assistance from Nasreen Seria.

To contact the editor responsible for this story: Zoe Schneeweiss at zschneeweiss@bloomberg.net, Fergal O'Brien

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