SINGAPORE: The Singapore economy could experience “fits and starts” for the rest of the year and into 2020 with external headwinds, such as US-China trade tensions, having an uneven impact on industries here, the Monetary Authority of Singapore (MAS) said on Wednesday (Oct 30).
The trade‐related cluster, which has borne the brunt of the impact thus far, still faces “significant uncertainties” ahead, according to the central bank’s latest half-yearly macroeconomic review.
But the modern services cluster, which includes the information and communications technology (ICT), financial and insurance, and professional services industries, has held up as the "main anchor of growth" and will continue to provide support.
Another area of strength is the domestic-oriented cluster. Led by a recovering construction sector, it should also see “further incremental gains”, said the MAS.
“Growth will be uneven across the economy, with the modern services and domestic-oriented clusters offsetting the weakness in the trade-related cluster,” it wrote in its 115-page report.
SLOWDOWN CONCENTRATED IN ELECTRONICS-RELATED SEGMENTS
Amid global trade tensions and an electronics downturn, the Singapore economy has slowed significantly over the course of 2019.
Growth came in at 0.1 per cent on a year-on-year basis for both the second and third quarters, sharply lower than the average of 1.2 per cent growth in the preceding two quarters. The all-important manufacturing sector has also been in contraction since the start of 2019.
MAS said this decline in overall growth stemmed largely from the weakness in the trade-related cluster, especially from electronics-related activities.
“The trade‐related cluster remained mired in the downturn of the global electronics cycle and US-China trade tensions. In particular, the largest drag to the cluster stemmed from the severe pullback in electronics demand.
“Accordingly, the weakness in the domestic economy was most discernible in the electronics‐related industries of the manufacturing and wholesale trade sectors."
On the other hand, modern services has remained the “lynchpin” of the Singapore economy, supported by digitalisation-related activities in the ICT and finance and insurance sectors.
For instance, credit card network services was a source of strong growth for financial services. “Demand for payment network services remained healthy, alongside a steady expansion in e-commerce activities, and the ongoing shift towards cashless payments," said the MAS.
The domestic-oriented cluster made a “small positive contribution” to overall growth in the past two quarters, said MAS. The cluster benefited from the recovery in the local construction sector, although weaknesses in the retail segment capped gains.
Tourism-related industries also saw an uptick as total visitor arrivals grew by 2.5 per cent year-on-year from April to August. This marked an improvement from the 1.7 per cent seen in the final quarter of last year to the first quarter of 2019, thanks to strong arrivals from the Americas and a rebound in visitors from Greater China.
Overall, MAS said this shows that the downturn has been “largely confined” to the electronics-related segments.
MODERN SERVICES, DOMESTIC CLUSTER TO SUPPORT ECONOMY
Moving forward, the central bank expects this unevenness in growth to continue with the Singapore economy likely in for an “extended trough”.
The outlook for the trade-related cluster, particularly for electronics-related industries, remains uncertain as it depends on a recovery of the global electronics cycle, as well as ongoing reconfigurations of regional trade flows and supply chains.
The latter is another source of uncertainty for Singapore, according to the central bank. It noted that shifts in trade patterns and regional supply chains have taken place since the first tranche of US trade restrictions were announced last June.
As a key node through which trade flows between regional economies, Singapore’s re-exports have reflected some of the shifts following the implementation of US tariffs.
For example, Singapore’s re-exports to Taiwan, United States and Vietnam gained momentum in the one-year period after the first tranche of US tariffs on Chinese imports were implemented in the third quarter of 2018. By contrast, those to China and Korea have seen continuous contraction.
“Nonetheless, the supply chains continue to evolve and the impact of these changes on the future growth of the trade‐related industries remains unclear and warrants monitoring,” MAS added.
The central bank expects the modern services cluster to remain supported by digitalisation-related activities, underpinned by ongoing digital transformation efforts both nationwide and in the region.
Within the financial and insurance sector, for instance, credit card network providers will continue to benefit from strong expansion in electronic transactions on the back of structural support factors, such as the rise of e-wallets, shifts in consumer preferences to e-commerce and cashless payments.
However, other parts of financial services will remain mixed. Business services, which includes firms that provide real estate, legal and accounting activities, is also set to ease further over the rest of 2019.
Overall, MAS expects the modern services cluster to see some growth moderation but remain a key source of growth in 2020.
Meanwhile, the domestic-oriented cluster will remain supported by construction. Essential services, such as education, and health and social services, will also offer support as these are typically insulated from cyclical developments, the report wrote.
The central bank reiterated its expectations for Singapore’s growth to come in at around the midpoint of the zero to 1 per cent forecast range in 2019, before improving “modestly” next year.
GLOBAL GROWTH TO SLOW BEFORE STABILISING
Outside of Singapore, the MAS expects global growth to slow from 4.3 per cent in 2018 to 3.6 per cent this year.
It noted that “a synchronous slowdown” has taken hold across major advanced economies and many Asian economies.
“Amid an escalation in trade tensions, heightened policy uncertainty has continued to inflict headwinds on global economic activity, contributing to declines in investment and output,” the report said.
“However, household consumption and the services sector have provided countervailing support to global growth.”
It added that many policymakers, faced with mounting risks of weakness in trade and manufacturing spilling over into the rest of their economies, have eased macroeconomic policies. These include a number of Asian countries, although stimulus measures in China “have been restrained compared with previous slowdowns”.
The MAS earlier this month reduced the pace of the Singapore dollar’s appreciation “slightly”, making its first easing move since April 2016.
In its macroeconomic review on Wednesday, the Singapore central bank said it expects global growth to stabilise in 2020. However, the global economy’s “steady loss of momentum raises its vulnerability to downside risks, even while policy space is becoming more constrained”, it added.