Skip to main content




After a ‘tale of two halves’ in 2018, Singapore’s growth outlook dims amid trade, global demand woes

After a ‘tale of two halves’ in 2018, Singapore’s growth outlook dims amid trade, global demand woes

The Singapore city skyline. (File photo: AFP/Roslan Rahman)

SINGAPORE: After a year “of two halves” in which growth started out briskly before losing speed towards end-2018, economists expect Singapore’s small and trade-dependent economy to slow further in 2019 amid weakening global demand for semiconductors and protracted trade tensions.

Official data released on Friday (Feb 15) morning showed the economy logging 3.2 per cent growth last year, missing initial estimates and easing from 3.9 per cent in 2017.

This as year-on-year growth for the final three months of 2018 came in below forecasts at 1.9 per cent – the slowest pace since the fourth quarter of 2015 when it grew 1.6 per cent – and down from 2.4 per cent in the previous quarter.

READ: Singapore economy slows to 3.2% growth in 2018

READ: Singapore's total trade rises 9.2% last year to S$1.1 trillion


The economy had started 2018 on a high note, with a growth spurt of 4.7 per cent year-on-year in the first quarter, according to figures from the Ministry of Trade and Industry (MTI).

However, growth eased to 4.2 per cent during the April to June period and in the third quarter, slowed to 2.4 per cent.

OCBC’s Treasury Research team described 2018 as a “tale of two halves for Singapore’s GDP” as escalated trade tensions between the United States and China, which began last June, led to global business uncertainty. 

The full-year GDP figure of 3.2 per cent was a “somewhat subdued ending” given that first-half growth of 4.4 per cent was the highest since 2012, OCBC said in its report.

Maybank Kim Eng senior economist Chua Hak Bin said the below-consensus growth number for the fourth quarter boils down to a bigger-than-expected slowdown in the services sectors.

Services, which make up two-thirds of the economy, grew by 1.8 per cent compared to a year ago, down from 2.7 per cent in the previous quarter.

This shows that easing global growth and disruptions from the US-China trade tensions are starting to bite, and their effects have gone beyond the manufacturing sector, said Dr Chua.

Delving into the specifics, he pointed to the 0.6 per cent year-on-year contraction in the wholesale and retail trade sector. Transportation and storage also “stalled very sharply” to 0.5 per cent year-on-year growth, from 1.9 per cent in the previous quarter.

“With trade tensions, everyone is just holding back from investment decisions and so orders for machinery, equipment, supplies and all others have fallen.” 

The underperforming construction sector also contributed to some of the lacklustre growth in the final quarter, said OCBC. 

“Overall, every other sector in the economy – other than info-communications, finance and business services – all saw slower growth year-on-year.”

READ: Economy will "continue to grow" this year, challenges ahead - PM Lee in Chinese New Year visit to SATS

READ: Cost of living in Singapore: Slow overall inflation but some pressure points

“SHAKY” 2019

Following a “slow finish” for 2018, Dr Chua reckons a “shaky” start for Singapore’s economy in 2019 as uncertainties surrounding trade linger. 

The clock is ticking down on the 90-day truce between the US and China, with top trade negotiators from both countries in Beijing this week for high-level talks. US President Donald Trump has said that he is open to extending the trade truce beyond Mar 1, depending on progress in Beijing.

Both economic superpowers have thus far imposed duties on more than US$360 billion in two-way trade, which has weighed on their manufacturing sectors and shaken global financial markets.

Already, Government forecasters are pencilling in a “significant moderation” in manufacturing growth for 2019, with the electronics and precision engineering clusters likely to take the biggest hit due to falling semiconductor demand worldwide.

The extent of this moderation, according to Dr Chua, could be “near zero” growth for manufacturing in the first quarter.

This can be gleaned from the downward trend in Singapore’s purchasing manager’s index (PMI), which dropped to 50.7 in January. The electronics sector PMI recorded a third month of contraction at 49.6 for January.

A reading above 50 indicates that the manufacturing economy is generally expanding and vice versa when the index falls below 50. 

Dr Chua said he expects PMI figures for February and March to hover at similar levels. “That will mean that manufacturing growth will be near stagnant for the first quarter," he said. 

“If trade talks break down, the manufacturing slowdown, which is already very sharp, could slip into negative territory,” he added. “Recession is a tail risk if that happens.” 

Commentary: Careful not to humiliate China in trade negotiations

Growth in outward-oriented services sectors, such as wholesale trade, transportation and storage, is also expected to ease this year alongside slower growth in key advanced and regional economies, MTI has said. 

Nevertheless, “bright spots” remain in some services clusters, such as information and communications, education, health and social services, said UOB economist Barnabas Gan. 

Construction could also see a turnaround with “low-digit” growth following three years of contraction, said Maybank Kim Eng’s Dr Chua.

Taken altogether, Dr Chua said he continues to expect 2.2 per cent for growth in 2019, citing a “more cautious” tone in MTI’s outlook.

Referring to the official forecast range of 1.5 per cent to 3.5 per cent growth, he said: “MTI sounded more cautious in its 2019 outlook, stating that growth may come in slightly below the mid-point of its forecast range, as opposed to last year’s statement (which said) slightly above the mid-point.”

Mr Gan has a 2.5 per cent forecast, but he warned of downside risks to that estimate given a relatively weak external environment outlook.

“Growth outlook into 2019 will depend largely on Singapore’s external environment and manufacturing activity, which is clearly a function of how global growth, confidence, and trade environment may perform into 2019,” he said.

Source: CNA/sk(hs)


Also worth reading