SINGAPORE: With “strong headwinds” ranging from an escalating trade war to a downturn in the global electronics cycle likely to persist for the rest of 2019, Singapore has cut its expected growth for the year to between 0 and 1 per cent.
Annual gross domestic product (GDP) is expected to come in “at around the mid-point of the forecast range”, said the Ministry of Trade and Industry (MTI) on Tuesday (Aug 13). This is sharply lower than the previous estimated range of 1.5 to 2.5 per cent, which was announced in May when MTI slashed the upper end of the growth forecast.
The downgrade in growth estimates for the second consecutive quarter came as official data confirmed the economy as growing at its slowest pace in a decade during the second quarter.
GDP growth was at a tepid 0.1 per cent on a year-on-year basis during the April to June period, in line with the Government’s initial estimate and slowing from the previous quarter’s 1.1 per cent.
For the second quarter, manufacturing was the main drag, with output declines in the electronics, transport engineering and precision engineering clusters resulting in a year-on-year contraction of 3.1 per cent. This was a much steeper decline than the 0.3 per cent contraction seen in the first quarter.
The services producing industries logged growth of 1.1 per cent in the second quarter, compared with 1.2 per cent in the previous three months, as sectors like finance and insurance, and information and communications provided support.
The construction sector continued its recovery with growth of 2.9 per cent year-on-year, a slight increase from 2.8 per cent in the first quarter. Output remained supported by public sector construction works, said MTI.
On a quarter-on-quarter seasonally-adjusted annualised basis, the economy shrank by 3.3 per cent – a sliver away from the expected 3.4 per cent contraction, but a reversal from the previous quarter’s 3.8 per cent growth.
This will likely add on to existing concerns about a looming technical recession, which is defined as two straight quarters of quarter-on-quarter contraction.
Amid plunging exports, the Government also slashed its full-year forecast for non-oil domestic exports (NODX) to between -9 to -8 per cent for 2019, down sharply from the previous range of -2 to 0 per cent.
Data from Enterprise Singapore also released on Tuesday morning showed NODX fell by 14.6 per cent in the second quarter, worsening from the 6.4 per cent decrease in the previous quarter.
INCREASING DOWNSIDE RISKS
MTI, in its press release, said there has been a further weakening in the global growth outlook over the last three months.
The growth prospects of key emerging markets and developing economies in particular, such as the ASEAN-5 and China, have worsened partly due to the escalation in the US-China trade conflict.
The trade spat has also exacerbated an ongoing downturn in the global electronics cycle, which has now entered a "sharper-than-expected downswing" and will pose a greater drag on economies with sizeable electronics and related sectors, MTI said.
At the same time, uncertainties and downside risks in the global economy have increased.
These include a further escalation in the US-China trade conflict after the US recently announced possible tariffs on an additional US$300 billion of imports from China, a steeper-than-expected slowdown of the Chinese economy, the heightened risk of a "no-deal” Brexit, as well as uncertainties in Hong Kong and an emerging trade dispute between Japan and South Korea.
Asked about impact from the months-long political instability in Hong Kong, MTI permanent secretary Gabriel Lim told reporters during a briefing: "There is some impact but I would not say it’s very large in terms of immediate impact."
Mr Lim added that the Government continues to look at developments in Hong Kong “very carefully”, and reiterated Home Affairs and Law Minister K Shanmugam’s comments over the weekend that instability in Hong Kong "is not good for Singapore or the region in the long term”.
READ: Will China allow a different system in Hong Kong? Wishful thinking, says Singapore's Shanmugam
ON LABOUR MARKET, MONETARY POLICY
Against this challenging external macroeconomic environment and the deepening downturn in the global electronics cycle, MTI said the Singapore economy “is likely to continue to face strong headwinds for the rest of the year”.
It singled out manufacturing’s electronics and precision engineering clusters as the ones that will remain weak, due to the sharp decline in global semiconductor demand.
The downturn in these clusters will also affect the wholesale trade segment, while the chemicals cluster is likely to soften given weakening import demand from China.
Slowing global trade volumes could also weigh on other trade-related services sectors, like transportation and storage, MTI said.
Asked if the Government could step in to support sectors that have been negatively impacted, Mr Lim said while authorities are on standby, it has to look at the situation carefully so as to “make the right diagnosis” of the issue at hand, while continuing to focus on the longer-term economic transformation.
Prime Minister Lee Hsien Loong, while commenting on Singapore’s growth slowdown in his National Day message last week, had said the Government will do so “should it become necessary to stimulate the economy”.
On the outlook for the local labour market, a Manpower Ministry spokesperson noted that “some upward pressure” can be expected on unemployment and retrenchment rates moving forward given the economic headwinds.
“We are monitoring the situation very closely,” he added.
Nevertheless, MTI stressed that “several areas of strength” remain in the Singapore economy.
Within manufacturing, for instance, the aerospace, and food and beverage manufacturing segments are expected to continue to do well given firm demand conditions.
Turning to services, the information and communications, finance and insurance sectors is projected to remain healthy.
The education, health and social services segment’s growth will also likely stay resilient, said MTI, while adding that the recovery in the construction sector is expected to be sustained.
The Monetary Authority of Singapore, in response to a question asked during the briefing, said its monetary stance remains unchanged and that it is “not considering an off-cycle policy meeting”.
"NEED NOT BE OVERLY PESSIMISTIC": CHAN CHUN SING
Commenting on the latest GDP figures, Trade and Industry Minister Chan Chun Sing said in a Facebook post that Singapore should brace itself for the challenges ahead but "need not be overly pessimistic".
He noted how Singapore has continued to attract good investments - with the most recent being a S$2.1 billion investment from Finnish energy giant Neste - as a show of confidence that investors have in the country's long-term value proposition.
Mr Chan added in his post that the Government will continue to monitor the situation closely.
"Because every economic cycle is different and we must apply the right measures in order to effectively support our businesses and workers," he wrote.
"As we manage the cyclical headwinds, we will also restructure our economy to deal with the longer-term structural shifts. This will allow us to weather the storm and emerge stronger as a country."