SINGAPORE: Singapore’s economic growth slowed to 3.8 per cent in the second quarter from a year ago as momentum in both the manufacturing and services sectors eased, advance estimates from the Ministry of Trade and Industry (MTI) showed on Friday (Jul 13).
This comes in below the median forecast of 4 per cent in a Reuters poll of 12 economists, and is down from the year-on-year growth of 4.3 per cent in the first quarter.
On a quarter-on-quarter seasonally adjusted annualised basis, the economy expanded at a slower pace of 1 per cent during the April to June period, underperforming expectations of 1.2 per cent in the Reuters survey.
This is also lower than the quarter-on-quarter growth of 1.5 per cent in the previous three months.
For the second quarter, the manufacturing sector grew by 8.6 per cent on a year-on-year basis, easing from the 9.7 per cent growth in the previous three months. MTI said all clusters within the sector expanded during the quarter, with the electronics and biomedical manufacturing clusters contributing the most.
On a quarter-on-quarter seasonally-adjusted annualised basis, the sector shrank marginally by 0.1 per cent, a reversal from the previous quarter’s 21.3 per cent growth.
The services producing industries also moderated; year-on-year growth came in at 3.4 per cent, down from 4.0 per cent in the first quarter, with support coming primarily from the finance and insurance, and wholesale and retail trade sectors.
Quarter-on-quarter, the services sector, which makes up two-thirds of the economy, grew by 2.5 per cent. This marked a turnaround from the contraction of 1.4 per cent in the preceding quarter.
The construction sector remained an underperformer with a contraction of 4.4 per cent on a year-on-year basis, extending the 5.2 per cent decline in the previous quarter, weighed down primarily by continued weakness in private sector construction activities.
On a quarter-on-quarter seasonally-adjusted annualised basis, the sector shrank by 14.6 per cent, reversing the 0.9 per cent growth in the preceding quarter.
Mr Jeff Ng, chief economist at Continuum Economics, said the lower-than-expected GDP estimates for the second quarter pointed to sluggish growth in domestic-oriented services.
While growth remained supported by both manufacturing and services, there was “little broadening of growth” in the services sector where momentum continued to be supported by wholesale and retail trade, as well as financial services, he said.
Meanwhile, expectations for manufacturing’s growth pace to taper could be materialising, said Nomura economist Brian Tan.
The sector, which accounts for one-fifth of Singapore’s economy, enjoyed a growth spurt last year on the back of an explosion in semiconductor manufacturing. Analysts have long expected growth to start moderating this year.
“I think we are starting to get that moderation coming in and I suspect growth could slow more noticeably because of the very unfavourable base effects in the second half,” said Mr Tan.
“By extension, this will mean a fall in the year-on-year growth rate.”
TRADE TENSIONS AMONG DOWNSIDE RISKS AHEAD
In May, MTI narrowed the forecast range for Singapore’s annual growth to between 2.5 per cent and 3.5 per cent – a range that the Monetary Authority of Singapore (MAS) reiterated earlier this month as it said the economy is expected to remain on a “steady expansion path” despite headwinds from trade tensions.
Prior to that in April, the central bank tightened monetary policy for the first time in six years.
Moving forward, analysts expect escalating trade tensions between the world’s two biggest economies to be one of the downside risks for Singapore.
“The risk that we get more tariffs is substantial and cannot be dismissed as we get into the United States’ midterm elections in November,” said Mr Tan. “If things get more political in the US, there is a risk that more (tariffs) get announced.”
The impact on Singapore would come from supply chain risks, according to Mr Ng.
“Singapore is closely tied to global and regional supply chains. A 10 per cent drop in China or US imports will decrease Singapore exports by about 1 to 2 percentage points. This should weigh on both domestic exports and re-exports,” he said.
In addition, the latest property cooling measures may also limit the upsides to near-term domestic growth, Mr Ng added.
While noting these downside risks, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye wrote that “MTI’s advance GDP estimate tends to be more conservative”. Hence, they are expecting an upgrade in the final second-quarter GDP estimates and services growth.
They are also holding on to their full-year growth forecast of 3.5 per cent, given how first-half GDP is running slightly above four per cent and trade-related impact may not yet be felt in the third quarter.
The advance GDP estimates are computed largely from data in the first two months of the quarter - in this case, April and May. They are intended as an early indication of GDP growth in the quarter, and are subject to revision when more comprehensive data become available, said MTI.
MTI will release the second-quarter Economic Survey of Singapore in August, which will include performance by sectors, sources of growth, inflation, employment and productivity.