SINGAPORE (13 Dec): Singapore’s economy is likely to have dodged a recession this year, with private-sector economists expecting a full year growth of 0.7%, up from their initial 0.6% growth estimate in September. This follows the better-than-expected Gross Domestic Product (GDP) of 0.5% for 3Q2019.
GDP growth estimates from a survey of 22 economists by the Monetary Authority of Singapore released on Nov 11 are in line with the Trade and Industry Ministry’s (MTI) projection of a 0.5 to 1% growth in 2019. In 2020, GDP growth, on average, is expected to rise to 1.5% for 2020 as a whole according to the MAS survey. However, this latest 1.5% average growth estimate for next year is marginally slower that economists’ growth estimate of 1.6% made in MAS’ survey in September.
The respondents, on average, estimate that the growth outcome for the Singapore economy is most likely to be in the range of 1.5 to 1.9% next year, narrowing from the 1.0–to-1.9% range in the previous survey. Even so, it is higher than the 0 to 1% growth rate predicted by the International Monetary Fund (IMF) in end October.
For much of this year, Singapore’s export-oriented economy was hit by significant declines in exports and a resultant contraction in its manufacturing sector in light of the ongoing US-China trade war. As a result, the 22 economists polled are looking at an annual contraction in manufacturing of 1.4%, better than their initial prediction of a 2.4% contraction. They are also looking at a 3% contraction in wholesale and retail trade for the year (Chart 1).
Meanwhile, positive growth is expected in the services sector with the finance and insurance sector and private consumption taking the lead with their forecast growth of 4.1% each. Selena Ling, chief economist at the Oversea-Chinese Banking Corp (OCBC Bank) warns that the dent on manufacturing may have a contagion effect on the services sector, even if the trade war subsides and tariffs do escalate further.
Growth enablers
The services sector will be the key pillar fueling Singapore’s growth in 2020 notes UOB economist Barnabas Gan (chart 2). Citing the MTI’s recent 3Q19 GDP growth report, Gan observes that the information and communications cluster is likely to grow, following “firms’ healthy demand for IT and digital solutions”. OCBC’s Ling agrees noting that other green shots from the sector are in construction, finance and insurance, education and health and social services.
Separately, Gan predicts a recovery in the manufacturing sector – in line with the survey’s findings – will be another boost to 2020’s growth. “Singapore’s industrial production growth has surprised market expectations by clocking positive growth prints in September (up 0.7% y-o-y) and October (up 4.0% y-o-y)” he points out, adding that there has been a simultaneous improvement in the contraction of semiconductor sales in Asia Pacific.
Gan is also looking at an improvement in Singapore’s exports, led by a recovery of the global economy. He expects non-oil domestic exports (NODX) to hit 1.6% in 2020, ahead of the 9.1% contraction predicted for this year. He explains, “while electronic exports could remain in contraction zone (2020: -3.2%, up from an estimate of -21.0% in 2019), non-electronic export growth is expected to expand by 2.4% in 2020 (2019 estimate: -4.7%), led by healthy shipments of pharmaceutical products, chemicals, and electrical circuit apparatus”.
Inflation
Meanwhile, headline inflation – the measure of the total inflation in the economy – is expected to be 0.6% for 2019, MAS’ survey showed. This is lower than the 0.7% estimated in September. MAS’s core inflation – which strips out private road transport and accommodation costs – is projected to be 1.1%, down from the 1.2% anticipated previously. These estimates are in line with the MAS and MTI forecasts of 1 to 2% for full year core inflation and 0.5% for headline inflation
Next year, they are looking at both core and headline inflation averaging between 0.5 to 1.5%. This is in sync with the economists’ estimates of 0.9% for headline and 1.2% for core inflation.
Roadblocks ahead
Looking ahead, OCBC’s Ling warns that the labour market may continue to soften in 2020. Resident unemployment hit 3.2% in 3Q2019 – the highest level in the past two years. This comes on the back of the uptake in retrenchments of professionals, managers, executives and technicians (PMETs), whose jobs are being disrupted. Ling adds that Singapore is expected to have the largest disruption in its workforce and the fastest digital transformation in Asean. And so, she suggests a major upskilling or reskilling for the labour force to stay relevant.
Heightened trade tensions, particularly between the US and China is another key fear, with nine in 10 economists naming it as a danger and less than half considering it a concern. Even so, OCBC’s Ling expects more clarity on this after the superpowers hold their phase 1 trade talks on Dec 15, after The Edge Singapore goes to print. For now, she says the bank’s baseline scenario is that the deal will be signed.
