Singapore cuts economic growth forecast to 0-1% for 2019

SINGAPORE has cut its official growth forecast for the second quarter running, on a flat economic performance in the first half of the year.

The gross domestic product (GDP) is likely to come in between zero growth and 1 per cent for the full year, the Ministry of Trade and Industry (MTI) said early on Tuesday. The final print is expected to fall in the middle of that range.

The MTI had already trimmed its growth expectations once this year, in May 2019, when it lowered the upper bound from 3.5 per cent, and forecast growth of 1.5 per cent to 2.5 per cent. That would have made for a steep slowdown, against the full-year GDP growth of 3.1 per cent clocked in 2018.

But quarterly economic data has continued to soundly disappoint.

The latest downgrade came as the MTI affirmed its flash estimate for second-quarter GDP growth of 0.1 per cent, on better-than-feared factory and construction data, even as growth in the services sector was moved down by a smidgen.

The GDP grew by 0.6 per cent year on year for the first six months altogether. "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," the MTI said in a statement.

It noted that "the Singapore economy is likely to continue to face strong headwinds for the rest of the year", and singled out the electronics and precision engineering clusters, where weakness in the first half is expected to stretch into the rest of the year on poor global semiconductor demand.

"The downturn in these clusters will also continue to have negative spillover effects on the wholesale trade segment," said the ministry, while adding that growth in other trade-related sectors, such as transport and storage, could suffer as well.

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

Overall, the manufacturing sector was down by 3.1 per cent year on year, widening from the 0.3 per cent contraction in the first quarter, although aerospace and food and beverage manufacturing are expected to be bright spots.

Meanwhile, construction - which was in negative territory in 2018 - has grown by 2.9 per cent, beating the previous quarter’s 2.8 per cent expansion. The recovery in construction is expected to be sustained, said the MTI.

Led by finance and insurance and information and communications (ICT), Singapore’s services industries notched growth of 1.1 per cent over the year before - easing a tad from 1.2 per cent in the first three months of 2019.

The MTI added that growth in these two services segments "is projected to remain healthy", while education, health and social services should be "resilient" on more healthcare facility activity.

But Trade and Industry permanent secretary Gabriel Lim acknowledged in a morning press briefing that the service sectors that are posting growth “are not as big as manufacturing, in terms of the share of (value added)” to the economy.

“So the extent to which I think they can sort of offset (manufacturing) is quite hard to tell,” he said. “It really depends just on growth in these sectors - whether it’s finance, whether it’s ICT, or not; but also, I suppose, how manufacturing and so on continues to move forward.

“Which, in turn, depends on essentially what happens in the second half of this year and whether or not some of these downside risks are realised. So we have to watch out for that.”

On a seasonally adjusted, quarterly basis, the GDP shrank by 3.3 per cent in the second quarter - slightly better than the 3.4 per cent decline indicated in the flash estimates - a turnaround from the 3.8 per cent growth in the first quarter. Two straight quarter-on-quarter declines would push Singapore into a technical recession, as private economists have been warning.

The industry bearishness came even after Deputy Prime Minister Heng Swee Keat, who is also Finance Minister, rebuffed fears of a severe economic contraction in mid-July.

“We are not expecting a full-year recession at this point,” he said in a statement then.

But global trade has since been buffeted by waves of bad news, including more tariff skirmishes between the United States and China, as well as escalating tensions between Japan and South Korea, the MTI noted. It also cited a Chinese economic slowdown, political turmoil in Hong Kong, higher chances of a "no-deal Brexit" and the tensions in both North Korea and the Strait of Hormuz as risks.

“Naturally, given how uncertain and unpredictable the situation is, I think it would be a little bit premature to talk about 2020’s forecast,” Mr Lim told reporters.

Separately, trade agency Enterprise Singapore has drastically cut its full-year export forecast to a contraction of between 8 per cent and 9 per cent - well below an earlier prediction of zero to 2 per cent decline - on a double-digit drop in second-quarter non-oil domestic exports.

“Prospects for the externally oriented sectors look a tad dismal,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a morning report.

He pointed to the hit to supply chains and demand, as a result of US-China trade tensions. Also, the trade conflict could cripple an electronics sector already in cyclical downturn and “hijack chances of bottoming in electronics, threatening to prolong pain with a double dip”.

“Above all, the biggest worry is that business confidence undermined inadvertently exacerbates the slowdown and retards a recovery into late 2020,” Mr Varathan added.