SINGAPORE: With Singapore’s economic growth likely to remain sluggish amid a lacklustre global outlook, the Government is reviewing its forecast of 1 to 3 per cent growth for 2016.
The review will be conducted by the Monetary Authority of Singapore (MAS), together with the Ministry of Trade and Industry, MAS said at a briefing following the release of its annual report on Monday (Jul 25).
The central bank cited three developments that it is keeping a close eye on – the implications of the recent Brexit vote on economic growth in the United Kingdom and European Union, the recovery of the US economy as well as the growth slowdown in China.
Against this backdrop, the Republic’s growth will likely stay sluggish. Despite the possibility of “some month-to-month volatility”, MAS added that the economy’s performance over the next six months is unlikely to differ much from the first half of the year, where growth averaged at 2.2 per cent year-on-year.
EXPECT GROWTH FORECAST TO BE LOWERED TO 1.5-2.5%: ECONOMISTS
Economists that Channel NewsAsia spoke to tipped the full-year growth estimate to be lowered to 1.5 to 2.5 per cent. A change in forecast for growth to come in at 1 to 2 per cent may also be on the cards if the Government has additional concerns about Brexit or China, said OCBC Bank’s head of treasury research and strategy Selena Ling.
“The economy will likely hit the speed bump in the third quarter as Brexit’s economic implications start to materialise,” said Ms Ling, adding that the bank is holding on to its full-year forecast of 1.8 per cent growth for now.
“We think our forecast is in a safe range now (and) there’s no big reason to move. So, if you ask me how they might review the growth forecast, I think 1.5 to 2.5 per cent is a reasonable range. But if they are worried about Brexit or China, then 1 to 2 per cent is possible.”
However, economists agree that there is “nothing unusual” about the review despite the recent rise in risks to global economic growth brought about by Britain's vote to exit the EU. The MAS typically narrows its growth forecast to 1 percentage point annually around this time of the year, according to DBS economist Irvin Seah, before reducing it further to 0.5 percentage point in the fourth quarter.
At the briefing, managing director Ravi Menon noted that "the trade cluster is showing tentative signs of stabilisation with improvement in certain segments" such as the electronics industry, as well as the wholesale and sea transport sectors. However, modern services including financial services, will likely experience slower growth.
Economists say while there are some signs of "tentative green shoots" in certain sectors, it remains too early to tell if the worst is over.
The manufacturing sector, for one, saw its output rose by 0.8 per cent on-year in the advance estimates of Singapore’s second quarter gross domestic product (GDP), reversing a 0.5 per cent decline in the previous quarter. According to OCBC’s Ms Ling, the rebound into positive territory indicates a bottoming out in the crucial manufacturing sector but the sustainability of the trend is still very much a question mark.
Meanwhile, the construction and services sectors remain at the mercy of challenging external conditions, added DBS’ Mr Seah, who reiterated that the risks in the Singapore economy remain broad-based.
“We think this year’s growth will be lower than last year's… unless we see some significant improvements but that’s unlikely judging from what we see going on in the world,” he said. The Republic’s economy expanded by 2.0 per cent in 2015, and advance estimates from the MTI put second-quarter growth at 2.2 per cent on a year-on-year basis.
NO NEED TO CHANGE CURRENT POLICY STANCE: MAS
The central bank also said on Monday that unless there was a marked deterioration in the global economy, or a significant shift in the inflation outlook, there was no need to change its current monetary policy stance.
In April, the MAS surprised markets by shifting its exchange rate policy to a zero appreciation stance. This “preemptive approach” means that the central bank’s monetary policy is “ahead of the curve” and will remain relevant in current economic conditions, said Mr Seah.
In addition, expectations from the MAS for headline inflation to climb out of negative territory and for core inflation to gradually rise over the course of the year, indicate that the likelihood of a change in the central bank’s policy settings is unlikely this year.
“The MAS typically keeps its cards close to its chest, but today the central bank was crystal clear that a change to the current monetary policy settings (i.e. a downward re-centering) is unlikely this year,” said HSBC economist Joseph Incalcaterra.
“However, with Mr Menon stating that core CPI will be close to the long-run average of 2.0 per cent in 2017 and assuming this view holds in October, the 2017 core forecast range looks set to increase, which would rule out further easing,” he added.
RECENT 1MDB FINDINGS HURT SINGAPORE’S REPUTATION: MAS
MAS also spoke about the stance it has taken on integrity in the financial industry, following recent announcements by the central bank against several financial institutions for lapses in managing 1MDB-related flows.
The central bank said the statements it has made so far have been unprecedented, and that it has said a lot more publicly than usual before reviews are completed.
MAS said that it is disappointed with the lapses and breaches, and that recent findings have hurt Singapore’s reputation as a clean and trusted financial centre.
Amid increasing sophistication of money-laundering activities, Mr Menon said MAS is determined to address the problem through four main areas – its regulatory framework, supervision of the financial institutions, stronger enforcement of the rules and closer cross-border cooperation.
"Given that our (anti money laundering and countering finance of terrorism) rules are in line with international standards, it is not readily apparent that we need more new rules.The problem in all the instances we have picked up has been a failure to comply with the rules and poor judgement," said Mr Menon.