SINGAPORE: Singapore has slashed the lower end of its annual growth forecast as data showed the economy growing faster-than-expected in first three months of 2018.
The Ministry of Trade and Industry (MTI) said on Thursday (May 24) that it now expects gross domestic product (GDP) growth for 2018 to come in at 2.5 per cent to 3.5 per cent, compared with the previous estimate of between 1.5 per cent and 3.5 per cent.
Official data also showed the economy expanded by 4.4 per cent on a year-on-year basis in the first quarter of this year, faster than the 3.6 per cent in the previous three months, with manufacturing as its strongest growth driver.
The year-on-year expansion is slightly higher than the Government’s initial estimate of 4.3 per cent, as well as forecasts from economists polled by Reuters who had similar expectations.
On a quarter-on-quarter seasonally adjusted annualised basis, Singapore’s GDP grew 1.7 per cent, moderating from the 2.1 per cent growth in the preceding quarter. However, this is higher than the official forecast and Reuters’ poll that had expected quarter-on-quarter growth of 1.4 per cent.
For the first quarter, the manufacturing sector, which accounts for one-fifth of the economy, grew by 9.8 per cent year-on-year, extending the 4.8 per cent growth in the previous quarter. The sector’s growth was primarily driven by the electronics, precision engineering and chemicals clusters.
On a quarter-on-quarter seasonally adjusted annualised basis, the manufacturing sector expanded by 22.1 per cent, a turnaround from the 14.8 per cent contraction in the preceding quarter.
Also seeing an acceleration is the finance and insurance sector which quickened to 9.1 per cent growth year-on-year, from 6.3 per cent in the previous quarter, propped up by robust growth in the fund management, financial intermediation and insurance segments.
On a quarter-on-quarter seasonally adjusted annualised basis, the sector expanded by 4.5 per cent, moderating from the 12.6 per cent growth in the fourth quarter of last year.
These two sectors contributed the most to GDP over the first quarter and together, they accounted for 68 per cent of overall growth during the three-month period.
Among others, the wholesale and retail trade sector expanded by 3.0 per cent year-on-year, unchanged from the growth recorded in the previous quarter, with the wholesale trade segment being supported by an increase in the wholesale sales volume of petroleum products. The retail trade segment contracted, weighed down by a fall in the volume of motor vehicle sales.
On a quarter-on-quarter seasonally adjusted annualised basis, the wholesale and retail trade sector shrank by 11.2 per cent, a pullback from the 6.5 per cent growth in the previous quarter.
The construction sector remained the underperformer with a contraction of 5.0 per cent year-on-year, the same pace of decline as in the previous quarter. Construction output was weighed down by continued weakness in both public sector and private sector construction activities.
On a quarter-on-quarter seasonally adjusted annualised basis, the sector grew by 1.7 per cent, reversing the 0.2 per cent contraction in the preceding quarter.
INCREASING DOWNSIDE RISKS IN GLOBAL ECONOMY
In its report, MTI said the global economy has remained on a steady expansionary path since the start of the year, with full-year growth expected to improve slightly as compared to 2017.
However, alongside the improvement in the growth outlook of some of the key economies, uncertainties and downside risks in the global economy have also increased since early 2018.
These include the recent protectionist actions and tariff measures by the US, which have increased the risk of an escalation of global trade tensions. This could adversely affect international trade as well as dampen investor and consumer confidence, in turn weighing on global growth.
When asked if the recent agreement between the US and China to avoid a trade war could eliminate or mitigate this risk, Ms Yong Yik Wei, director at MTI’s economics division, said the Government is monitoring developments closely and is “cautiously optimistic” of this latest development.
While there are broader concerns relating to the risk of an escalation, she added that the direct impact of existing tariffs on the Singapore economy is expected to be “limited”.
This is because the products affected by the US tariffs on products, like solar cells and steel, only account for 0.09 per cent of the country’s total domestic exports.
Meanwhile, against the backdrop of rising global interest rates and generally tightening financial conditions, financial vulnerabilities in emerging market economies could surface, particularly for those with elevated debt levels, including in the region. If this occurs, there could be some pullback in investment and consumption growth in these economies.
On balance, the pace of growth in the Singapore economy is expected to remain firm in 2018, with growth supported primarily by outward-oriented sectors. In particular, the manufacturing sector is likely to continue to expand on the back of sustained growth in the electronics and precision engineering clusters, albeit at a more moderate pace as compared to 2017.
Likewise, outward-oriented services sectors such as finance and insurance, transportation and storage and wholesale trade are projected to continue to benefit from healthy external demand.
Growth is also expected to broaden to domestically oriented services sectors like retail and food services over the course of the year, on the back of an improvement in consumer sentiments amidst the on-going recovery in the labour market.
But the construction sector is likely to remain lacklustre as the earlier weakness in construction demand, particularly from the private sector, is expected to continue to weigh on construction activities this year.
Taking into account the strong performance of the Singapore economy in the first quarter and the slightly improved external demand outlook for Singapore, the MTI said it expects GDP growth for 2018 to come in between 2.5 to 3.5 per cent, barring the full materialisation of downside risks.