‘Faster first half, slower second half’: Singapore’s economy to lose speed ahead, say experts
Some economists reckon that the Monetary Authority of Singapore remains poised to tighten policy again in October.
SINGAPORE: The Singapore economy will likely hit speed bumps in the second half of 2018, with analysts expecting a “fairly significant” slowdown on the back of a confluence of factors, including escalating global trade friction stemming from US protectionist measures.
Official data released on Monday (Aug 13) showed the economy logging a better-than-expected growth of 3.9 per cent in the second quarter from a year ago. For the first half of 2018, gross domestic product (GDP) grew by 4.2 per cent on a year-on-year basis.
But while the Government kept to its estimated range for full-year growth, it flagged slower growth for the following six months.
Economists agreed, with one expecting GDP for the second half of the year to be half of what was achieved during January to June.
“We are looking at a fairly significant slowdown in the second half,” said Nomura analyst Brian Tan, who has a full-year forecast of 3 per cent for the Singapore economy.
“With the first half being 4.2 per cent, we are expecting about 2 per cent growth for the second half to have about 3 per cent for the full year,” he explained.
While this moderation in the pace of economic expansion, due to high base effects following the manufacturing-led growth spurt last year, is within expectations, economists said a storm of external risks has fuelled uncertainties.
These factors include slower global growth, the possibility of the US Federal Reserve raising interest rates faster than expected and the US ratcheting up global trade tensions with tariff threats.
“Given the base effects, everyone had a ‘faster first half, slower second half’ expectation and that has not changed,” said Mr Edward Lee, regional head of research for Southeast Asia at Standard Chartered Bank.
“But what has changed is the deteriorating trade narrative between the US and China. On the financial market side, there is clearly a lot more volatility largely due to weakness in the emerging market space as the Fed goes on quantitative tightening.”
Last month, 25 per cent tariffs on the first tranche of Chinese products valued at US$34 billion took effect, with Beijing responding in kind on the same value of US goods. More duties are set to be imposed on another US$16 billion worth of Chinese goods on Aug 23.
The Trump administration has also said that it may jack up the tariff rate on the next US$200 billion of Chinese imports – a proposal that China has said it would hit back with new tariffs on US$60 billion worth of American goods.
The latter, if rolled out, would clearly have a bigger impact on global demand and supply chains, said Mr Lee.
Echoing that, DBS senior economist Irvin Seah said trade friction between the US and China could indirectly affect Singapore given that they are the country’s biggest export markets.
Tighter liquidity conditions and mounting pressure on regional currencies could also weigh down on investor confidence and business sentiments, he added.
“Watch trade figures in the coming months for tell-tale signs for slowdown in growth. Expectations are for the third quarter’s growth to be the weakest this year, which will also pare down consensus expectations for the full year growth rate,” said Mr Seah, while adding that still expects Singapore’s growth for 2018 to be 3 per cent.
MAS STILL POISED TO TIGHTEN IN OCTOBER: EXPERTS
Still, economists reckoned that the Monetary Authority of Singapore (MAS) likely remains in tightening mode.
Nomura's Mr Tan, for one, is pencilling in another slight increase in the slope of the Singapore dollar's policy band when the central bank meets in October for its semi-annual policy meeting.
“Growth remaining on track to grow between 2.5 and 3.5 per cent, the labour market staying on a gradual recovery, and core inflation on a gradual rise to hit 2 per cent in the later part of this year – as long as the base case remains intact, they will continue to normalise.”
He added that a growth slowdown driven by base effects is unlikely to sway MAS from further tightening, unless signs of further escalation in tit-for-tat tariffs or hints of a significant slowdown in global growth emerge.
Nonetheless, Standard Chartered’s Mr Lee cautioned that the possibility of the MAS standing pat has increased.
“With the narrative changing quite a bit, there are some concerns whether the slowdown is going to accelerate. I would say the risk has increased for them to stay status quo,” he told Channel NewsAsia.
When asked by reporters during Monday’s briefing, MAS’ deputy managing director Jacqueline Loh described the central bank’s decision to tighten policy in April as based on expectations for steady economic growth and gradual rise in core inflation over 2018.
She added that the growth slowdown was “anticipated” and inflationary pressures are likely to persist.
With that, the central bank’s current monetary policy remains appropriate, said Ms Loh.