Economists slash Singapore's 2019 growth forecast to 0.6%

Expectations worsen for almost all sectors; easing of US-China trade war, fiscal stimulus top potential upside factors


PRIVATE-SECTOR economists have sharply lowered their full-year growth forecast for Singapore to 0.6 per cent, down from their 2.1 per cent prediction in June, in the Monetary Authority of Singapore's (MAS) latest quarterly survey of professional forecasters released on Wednesday.

The downgrade "is hardly surprising given the escalation of the US-China trade conflict since the last survey", combined with much weaker than expected Q2 numbers, said Maybank Kim Eng economist Lee Ju Ye.

The lowered expectation is in line with the government's forecast range of zero to 1 per cent, reduced in August from 1.5 to 2.5 per cent previously.

Sent out in August, the survey received responses from 23 economists and analysts. It does not represent MAS's views or forecasts.

For the third quarter, the economists expect year-on-year growth to be 0.3 per cent, better than the second quarter's flat 0.1 per cent print.

Assuming third quarter year-on-year growth stays positive, a negative quarter-on-quarter seasonally-adjusted rate is unlikely, "thus avoiding a technical recession episode", said UOB economist Barnabas Gan.

Maybank's Ms Lee and senior economist Chua Hak Bin believe Singapore "may have narrowly dodged a technical recession in the third quarter", as the manufacturing downturn eases on front-loading of trade orders in anticipation of higher US tariffs, and services performance is bolstered by hospitality and finance.

The survey found that the most likely range for full-year growth is 0.5 to 0.9 per cent, with a 37.3 per cent chance. Coming second is the range of zero to 0.4 per cent, with a probability of around 30 per cent.

Compared to the June survey, growth predictions worsened for almost all sectors: manufacturing (-2.4 per cent, worse than -0.2 per cent previously), construction (2.7 per cent, down from 3.5 per cent), wholesale and retail trade (-2.8 per cent, down from -0.3 per cent), and accommodation and food services (0.8 per cent, down from 1.4 per cent).

Non-oil domestic exports (Nodx) are expected to decline 9.2 per cent for the full year, worsening from an earlier predicted fall of 2.1 per cent.

Last month, Enterprise Singapore lowered its 2019 Nodx forecast range to -9 to -8 per cent, down from -2 per cent to 0 per cent previously.

The only improved expectations in the MAS survey were for the finance and insurance sector - expected to grow 4.3 per cent, up from 3.8 per cent - and private consumption growth, forecast at 3.4 per cent, up from 2.5 per cent.

Domestic consumption continues to be buoyed by relatively low unemployment, said CIMB Private Banking economist Song Seng Wun. Respondents expect 2.3 per cent unemployment for 2019, up marginally from 2.2 per cent previously.

Added Mr Song: "If there's anything we would watch out for, it's whether there is spillover from the manufacturing slowdown into services, which might then mean downside risks for consumption."

Expectations fell for both core and headline inflation. Core inflation is expected at 1.2 per cent, down from 1.4 per cent, and headline inflation at 0.7 per cent, down from 0.9 per cent.

Growth is still expected to improve in 2020 - though this is aided by the low base of 2019, Mr Song pointed out. Expectations have moderated since June, with 2020 growth now forecast at 1.6 per cent, down from 2.3 per cent before. The likely range is 1 to 1.9 per cent, down from 2 to 2.4 per cent earlier.

For 2020, headline inflation is forecast at 1 per cent and core inflation, 1.3 per cent.

Escalation of US-China trade tensions and a slowdown in China remain the top two downside risks named by respondents. Geopolitical risks in places such as Hong Kong and the Persian Gulf have risen, cited by nearly two in five respondents, up from 5.9 per cent in June.

Easing of trade tensions remains the top upside risk, but fewer respondents now see that as likely, compared to June. Nonetheless, the pick-up in predicted growth and inflation in 2020 suggests that some respite from trade tensions is expected into the next year, said UOB's Mr Gan.

Fiscal stimulus was the second most likely upside factor, cited by more than two in five, up from 17.6 per cent. Policymakers have said that while the situation does not yet warrant fiscal stimulus, the government is ready to intervene if things worsen.

Short of a widespread recessionary situation, fiscal measures might be targeted towards the ailing external-oriented sectors, said Mr Song.

The Maybank economists similarly do not expect a pre-Budget stimulus package if recession is avoided.

When next year's Budget does arrive, DBS economist Irvin Seah expects "a robust expansionary fiscal policy". "The outsized accumulated surpluses of more than S$15 billion would allow policymakers to focus on both near term counter-cyclical, as well as long-term economic transformation purposes," he said in a note last week.