Singapore slashes GDP, trade forecasts as economy stalls

Stanislaus Jude Chan

SINGAPORE (Aug 13): Singapore has further cut its GDP growth forecasts and trade growth projections for 2019, amid continued global economic uncertainty over escalating US-China trade tensions.

The Ministry of Trade and Industry (MTI) on Tuesday downgraded the GDP growth forecast for 2019 to between 0% and 1%.

Growth is expected to come in at around the mid-point of the forecast range.

This is the second straight quarter that the city state has slashed its growth expectations.

In May, MTI had lowered the GDP growth forecast to between 1.5% and 2.5%, down from an upper bound of 3.5%.

The steep decline, especially compared to full-year GDP growth of 3.1% in 2018, comes on the back of further weakening global growth outlook.

“In particular, the growth prospects of key emerging markets and developing economies such as ASEAN-5 and China have worsened, partly due to the escalation in the US-China trade conflict in recent months,” MTI says in a statement.

For the 2Q19 ended June, the Singapore economy grew marginally by 0.1% year-on-year, moderating from the 1.1% y-o-y growth in 1Q19.

This brings GDP growth for 1H19 to 0.6% compared to the corresponding period last year.

On a quarter-on-quarter seasonally-adjusted annualised basis, the economy contracted by 3.3% in 2Q19, reversing from the 3.8% growth in the first quarter.

“Looking ahead, GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half,” MTI says.

The manufacturing sector contracted by 3.1% y-o-y, sharper than the 0.3% y-o-y contraction in the previous quarter. Manufacturing output was largely weighed down by output declines in the electronics, transport engineering and precision engineering clusters.

The wholesale & retail trade sector contracted by 3.2 % y-o-y, larger than the 2.5% y-o-y decline in the previous quarter. The sector’s weak performance was led by the wholesale trade segment, which shrank mainly on account of a decline in the machinery, equipment & supplies sub-segment.

The decline was mitigated by a 2.2% y-o-y growth in the transportation & storage sector, a 0.9% y-o-y expansion in the accommodation & food services sector, a 4.1% y-o-y growth in the information & communications sector, a 5.2% y-o-y rise in the finance & insurance sector, and a marginal 0.5% y-o-y expansion in the business services sector.

After the release of the data, Oxford Economics says it will hard for Singapore to avoid slipping into technical recession, with US-China trade tensions unlikely to abate soon.

Singapore's weakness in exports and trade-related services will be a drag on its economy, likely pulling it into contraction in 3Q, says Oxford.

A technical recession is generally defined as two consecutive quarters of GDP contraction. Oxford Economics expects the central bank to ease its monetary policy at its October review, moving to – at a minimum – a more modest appreciation bias for the Singapore dollar against a basket of currencies.

OCBC says Singapore will likely counter the economic slowdown with a fiscal policy response, possibly in the form of targeted help for businesses.

But given that the slowdown is mainly in manufacturing and trade, any fiscal assistance may not be broad based, adds the bank.

The nation's central bank could also ease, OCBC says. The question is what that easing move could be -- a flatter slope for the Singapore dollar's nominal effective exchange rate (S$NEER) band, or an even more dovish move in the form of a shift to a neutral slope with a re-centering of the band, OCBC says.

Meanwhile, Enterprise Singapore in a separate announcement on Tuesday slashed forecasts for Singapore’s key non-oil domestic exports (NODX) to -9.0% to -8.0% for 2019 after reporting a third straight quarter of NODX decline.

On a y-o-y basis, NODX contracted by 14.6% y-o-y in 2Q19, due to decreased shipments of both electronic and non-electronic products.

This was a steeper drop from the 6.4% y-o-y decrease in the previous quarter, which had then triggered a revision of the NODX forecast down to -2.0% and 0.0% for the year.

Domestic exports of non-electronic products, which accounted for 79% of NODX in 2Q19, fell 10.5% y-o-y during the quarter, following the 2.6% decrease in 1Q19.

This was led by a 80.9% plunge in civil engineering equipment parts, a 32.0% drop in non-monetary gold, and a 15.0% decline in petrochemicals.

Domestic exports of electronic products tumbled 26.9% y-o-y in 2Q19, following the 17.2% decline in 1Q19.

This was mainly due to ICs, disk media products and PCs, which saw y-o-y declines of 32.2%, 38.7% and 15.9%, respectively.

“NODX performed weaker-than-expected in 2Q19 amid the global electronics downcycle, as well as generally sluggish global final demand and trade conditions,” Enterprise Singapore says in a statement.

It adds that global economic and trade growth is expected to further moderate in 2019, following the expansion in the last two years.

On a y-o-y basis, Singapore’s total merchandise trade decreased by 2.1% in 2Q19, after the 2.1% increase in the previous quarter, due to the decline in both oil and non-oil trade.

Oil trade declined by 7.6% in 2Q19 amid lower oil prices than a year ago, following the 6.9% decrease in the previous quarter.

Non-oil trade decreased by 0.6% in 2Q 2019, after the previous quarter’s 4.5% increase.

Enterprise Singapore has cut its 2019 growth projection for total merchandise trade to -3.0% to -2.0%.

“Prolonged uncertainties as a result of heightened risks in the global economy could further weaken business and consumer confidence, and lead to a cutback in global investment and consumption, thereby lowering global growth,” says MTI.

In particular, MTI says the weaker-than-expected performance of the electronics and precision engineering clusters in the first half of 2019 is expected to be sustained into the remaining quarters of the year due to the deterioration in the outlook for global semiconductor demand.

The downturn in these clusters will also continue to have negative spillover effects on the wholesale trade segment.

At the same time, the chemicals cluster is likely to soften given weakening import demand from China.

In addition to wholesale trade, growth in other trade-related services sectors like transportation & storage is likely to ease in tandem with slowing global trade volumes.

Nonetheless, MTI notes that there are several areas of strength in the Singapore economy.

Within the manufacturing sector, the aerospace and food & beverage manufacturing segments are expected to continue to do well given firm demand conditions.

Among the services sectors, the growth of the information & communications and finance & insurance sectors is projected to remain healthy, bolstered by sustained demand for enterprise IT solutions and increased demand for payment processing services respectively.

Meanwhile, the education, health & social services segment’s growth is likely to be resilient, supported by the ramp-up of operations in healthcare facilities.

The recovery in the construction sector is also expected to be sustained.