SINGAPORE (Jan 2): Analysts expect a “tepid recovery” for the Singapore economy in 2020, after advance GDP estimates released Thursday pointed to the worst growth performance for the city state since the global financial crisis in 2009.
According to the Ministry of Trade and Ministry (MTI), the Singapore economy grew by 0.8% y-o-y in 4Q19, led by a 2.1% growth in the construction sector and a 1.4% growth in the services producing industries.
Growth in the construction sector was supported by public sector construction activities, while services producing industries growth was primarily supported by the finance & insurance sector, the other services industries, and the business services sector.
On the other hand, the wholesale & retail trade sector contracted in tandem with the weakness in exports and retail sales performance.
The 4Q GDP growth, which came despite a 2.1% contraction in the manufacturing sector during the quarter, brought advance estimated for GDP growth in 2019 to 0.7%.
The manufacturing contraction was due to output declines in the electronics, chemicals and transport engineering clusters.
Despite the subdued growth in 2019, analysts say growth momentum is expected to pick up gradually in the coming quarters.
“Despite the lacklustre growth performance, the economy is slowly getting out of the woods,” says Irvin Seah, a senior economist at DBS Group Research in a flash note on Thursday.
Seah forecasts that Singapore will register GDP growth of 1.4% in 2020, but notes that this is still below its “potential growth rate” of around 2.5%.
“Signs of a turnaround are emerging, but recovery could be weak,” Seah says. “While small and agile economies such as Singapore could bounce back faster, its openness and trade dependent nature also imply vulnerability to unexpected negative shocks.”
While the economist believes the worst could be over for Singapore’s economy, he notes that the global outlook remains “fragile”.
“In short, the manufacturing sector could be turning around, but the outlook will remain challenging in the coming months, pending a more pronounced improvement in global economic conditions,” Seah adds.
Over at Oxford Economics, economist Sung Eun Jung agrees that while the external outlook has improved, the risk of relations between US and China deteriorating again “remains substantial”.
“On the domestic front, labour market conditions are softening as firms are more cautious about hiring and unemployment rate has been rising steadily since last year,” Sung adds.
Like DBS, Oxford Economics is also maintaining a forecast of 1.4% GDP growth for Singapore in 2020 following the release of the advance estimates.
“We still forecast a fiscal expansion in 2020, including some targeted measures to help offset the planned GST (goods and services tax) hike and support ailing industries,” Sung says.
With the gradual recovery in growth, Sung also expects the Monetary Authority of Singapore (MAS) to maintain the slope of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) – its key policy tool – at around 0.5%.
The S$NEER, the trade-weighted basket of currencies against the Singapore dollar, was reduced slightly in October last year.
