SINGAPORE (Oct 1): Amid global trade slowdown and continuing trade tensions, Singapore can expect slow and sluggish growth in the last quarter of 2019 and well into 2020, according to RHB Group Research.
In its research note on Tuesday, RHB lowered its forecasts for real GDP growth in 2019 and 2020, as it believes external conditions are likely to deteriorate – leading to a prolonged slowdown. “We lower our GDP growth forecast to 0.5% y-oy from 0.8% in 2019, and to 0.8% from 2.0% for 2020,” it said.
And while the brokerage says a technical recession is “a possibility” in 2019 and 2020, it has ruled that out in its baseline forecast. “That being said, overall growth for the rest of the quarters is expected to remain weak and sluggish,” RHB added.
RHB notes that Singapore’s exports have weakened considerably – and are likely to remain subdued for a prolonged period – on the back of planned increase in tariffs by the US and China in their ongoing trade war.
“The trade war will continue to escalate further, with China and the US imposing retaliatory tariffs effective Oct 15 and Dec 15 if current talks do not yield any results. The increased tariffs would likely push trade down even further,” RHB warned.
“Singapore barely escaped contraction in 2Q19 with GDP growth at a mere 0.1% y-o-y, moderating from the 1.1% growth seen in the quarter prior,” it added. “Forward looking indicators also point to ongoing contractionary manufacturing activity. The manufacturing PMI, for example, remains below the 50-reading.”
While the nation has so far re-oriented its focus to support domestic-focused and modern services, especially through public construction activities and investments in digital upgrading, that “cushioning” may not be enough to reverse the downward pressure on the economy.
“Core inflation is softening to multi-year lows, which highlights further evidence of a weakening economy,” RHB said. “The Monetary Authority of Singapore might be compelled to reverse its policy of gradual appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) in favour of an easing stance during its October 2019 meeting.”
It noted that the outlook is more positive in construction, whereby the sector expanded by 2.9% y-o-y in the second quarter, extending the 2.8% growth previously, supported by higher contribution from public investment.
The brokerage also expects private sector construction activity to pick up, following the increase in buildings commenced and building plans approved, which will help further spur sector growth.
However, they warn of a softening in employment, which will result in a dampening on private consumption. “Growth in private consumption is expected to soften in 2H19 to 2.2% from 4.4% in 1H19, in tandem with the moderation in employment growth, consumer confidence and business sentiment,” RHB said.
While employment rate remained unchanged in 2Q19 at 2.2% from the quarter prior, resident unemployment has increased to 3.1% from 3.0% during the same period. The unemployment rate has so far been rising gradually since 2Q18.
“In manufacturing, net negative employment addition is recorded. Although structural effects are in play as the sector becomes more reliant on automation, the cyclical effects from global slowdown also played a role,” RHB noted. “For the services sector, employment addition sharply moderated, due primarily to seasonal factors in the subsectors of accommodation and food service, as well as wholesale and retail. However, softer employment addition was also seen in IT and communications, and transport & storage.”
Overall, RHB thinks that employment conditions will likely become more challenging. “However, the government’s ongoing efforts to focus on digital upgrading – especially involving artificial intelligence and digital payments – should see some support to sectors of information & communications, business services, and finance. On balance, we project private consumption is projected to be resilient, albeit expanding at a more moderate pace in 2020,” it said.
