SINGAPORE: Singapore has slashed the upper end of its annual growth forecast as official data showed the economy clocking its slowest growth in nearly a decade during the first three months of 2019.
The Ministry of Trade and Industry (MTI) said on Tuesday (May 21) that it now expects gross domestic product (GDP) for this year to come in at 1.5 per cent to 2.5 per cent, compared with the previously estimated 1.5 to 3.5 per cent range.
This comes as Singapore’s economy grew 1.2 per cent year-on-year for the first quarter of 2019 – the slowest growth since the second quarter of 2009 – amid an escalation in the trade spat between the United States and China.
The year-on-year growth number is a tad below the previous quarter’s GDP figure, as well as the Government’s initial estimate, of 1.3 per cent.
On a quarter-on-quarter seasonally-adjusted annualised basis, GDP expanded by 3.8 per cent, a reversal from the 0.8 per cent contraction in the preceding quarter and higher than the official forecast of 2 per cent.
Manufacturing, which makes up one-fifth of the economy, shrunk by 0.5 per cent on a year-on-year basis in the first three months of 2019. This marks the sector’s first contraction in three years.
The sector saw a pull back from the previous quarter’s 4.6 per cent growth, as weak global semiconductor and related equipment demand led to output declines in the precision engineering and electronics clusters.
The wholesale and retail trade sector, another outward-oriented sector, contracted by 1.8 per cent year-on-year as both the wholesale trade and retail trade segments shrunk. This marked a steeper fall than the 0.8 per cent decline in the previous three months.
Other sectors fared better.
The information and communications sector – highlighted by MTI as among the “pockets of strength” in the Singapore economy moving forward – grew 6.6 per cent year-on-year, quicker than the 5 per cent growth in the last three months.
The construction sector logged its first quarter of year-on-year expansion after 10 consecutive quarters of decline. It expanded by 2.9 per cent on a year-on-year basis in the first three months of 2019, a turnaround from the 1.2 per cent decline in the previous quarter, as construction output rose on the back of increasing public sector and private sector construction works.
OUTLOOK “CLOUDED BY UNCERTAINTIES”
Since its last report issued in February, the 2019 outlook for global growth “has weakened further” as it remains “clouded by uncertainties and downside risks”, said MTI.
One such uncertainty is the risk of a further escalation in trade conflict between the US and China, following the return of tit-for-tat trade tariff threats between the two economic superpowers this month.
“Should this happen and trigger a sharp fall in global business and consumer confidence, investments and consumption could decline, thereby adversely affecting global growth,” said MTI.
There is also the risk of slower-than-expected Chinese economic growth, which could be “precipitated by the imposition of further tariffs by the US”, it added.
During a press conference on Tuesday morning, MTI permanent secretary Gabriel Lim said trade tensions have had a “somewhat modest” impact on the Singapore economy so far.
Adjustments in business output here, on the back of excess inventories globally, also has not translated into “significant reduction” in employment figures, added a representative from the Economic Development Board.
However, the Government will continue to keep a close eye on how the brewing trade war could affect consumer and business confidence here, said Mr Lim.
Apart from trade, another uncertainty on the horizon is the delay in Brexit until Oct 31. MTI said in its report that this has prolonged economic uncertainty and could further weigh on consumer and business sentiments in the United Kingdom and European Union.
Against this challenging external economic backdrop, key outward-oriented sectors are expected to slow this year, with manufacturing likely to see a “sharp slowdown in growth” following two years of robust expansion.
However, there are sectors that will remain resilient. Apart from the information and communications sector, these include education, health and social services segment, as well as the construction sector.
On monetary policy, the Monetary Authority of Singapore (MAS) said its current policy stance “remains appropriate” against a “cautious assessment” of GDP growth and inflation prospects.
“We remain vigilant in monitoring all factors impinging on inflation and growth prospects in the run-up to the next scheduled review in October, when we will decide on the appropriate policy stance to continue to ensure medium-term price stability in the Singapore economy,” its deputy managing director Edward Robinson told reporters.
Last month, the central bank kept its exchange rate-based monetary policy unchanged after tightening twice last year.
NEW METHOD TO COMPILE GDP
The release of the first-quarter growth figures on Tuesday followed a recent benchmarking exercise of Singapore’s national accounts by the Department of Statistics (Singstat), which involved a few adjustments to how the country’s GDP is compiled.
The most significant change would be the adoption of an annually re-weighted chain linking approach.
To put it simply, real GDP, which strips out the impact of inflation to show the economy’s growth, will now be based on prices from the previous year. This, in line with international recommendations, “better reflects prevailing economic conditions” compared to the previous constant price method.
Before this, a certain year is selected as the base year for GDP and that is revised every five years when Singstat conducts its rebasing exercise. For instance, the last exercise in 2014 updated Singapore’s national accounts to a base year of 2010, from the base year of 2005 set in 2010.
Singstat said this new chain linking approach has been adopted by some advanced economies, such as the United States and South Korea. Singapore will be the second Southeast Asian country to do so after Thailand adopted it in 2015.
Such exercises usually rewrite economic growth records but Singstat stressed that the latest benchmarking exercise only has a “moderate” impact on real GDP growth rates, ranging from -0.2 to 0.4 percentage points between 2015 and 2018.
For instance, the full-year growth rate of 2017 has been reduced to 3.7 per cent, instead of 3.9 per cent, while 2015’s growth figure got bumped up to 2.9 per cent, from 2.5 per cent.
Prior to 2015, the biggest change would be for year 2009 as real GDP growth rate was revised up from a contraction of 0.6 per cent to a modest 0.1 per cent expansion.
Nominal GDP levels, on the other hand, have been revised upwards by 0.5 to 0.8 per cent from 2015 to 2018.
Other changes involved in this exercise included improvements in methodologies and tapping on a wider range of data sources. Taken together, they enhance “the relevance and international comparability” of Singapore’s GDP estimates, Singstat said.