Analysts are mostly keeping to their earlier projections of Singapore’s 2023 GDP after the Ministry of Trade and Industry (MTI) narrowed its full-year GDP growth projection range to 0.5% to 1.5%, down from its previous estimate of 0.5% to 2.5%.
The possibility of a lowered projection had been flagged by MTI on Aug 11 when it announced that GDP for 2Q2023 was up by an 0.5% y-o-y — an unexpected revision from its preliminary estimate of a 0.7% y-o-y increase but still inching above the 0.4% growth eked out in the first quarter of the year.
Despite MTI’s downbeat assessment on Singapore’s GDP outlook, particularly in external demand, analysts like RHB Group Research’s senior economist Barnabas Gan are keeping their earlier GDP growth projections. Citing a recovery in 2H2023, he still expects Singapore to see a growth rate of 2.0% for the full-year.
While Gan admits that the balance of risks are “tilted to the downside”, he says that key catalysts including an improving global risk appetite, stronger tourism-related indicators and recovering momentum in Singapore’s externally-related data, are reasons why Singapore’s growth momentum is likely to improve in the second half of the year.
“We viewed Singapore’s [2Q2023] GDP to disappoint the advance estimates, an outlook that has materialised nicely. More importantly, the official downgrade of Singapore’s growth range in 2023 reinforced our downside risk view to our 2.0% annual growth forecast, in view of the recent momentum decline in both manufacturing and NODX,” he says.
Gan adds that his forecast is guided by RHB’s auto-regression and leading index models which are suggesting a recovery pattern in 2H2023. “Our Singapore Composite Leading Index (CLI), which leads empirical GDP by two quarters, has accurately underlined a slowdown in 1H2023. The same CLI is now suggesting a momentum pickup in 3Q2023, on the back of the improving momentum seen in Singapore’s high-frequency data.”
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For instance, the economist points out that electronic non-oil domestic exports (NODX) have continued to trend higher while the global semiconductor sales index is showing early signs of bottoming out. “However, overall momentum in NODX and manufacturing has slowed in the recent readings, although we think this is temporary given the ongoing global recovery prints seen in the developed economies and parts of Asia,” says Gan.
Meanwhile, UOB Global Economics & Markets Research senior economist Alvin Liew has kept his full-year GDP growth at 0.7%, which he notes remains near the lower end of the updated official growth forecast range of 0.5% to 1.5%. This is reflective of his cautious stance towards external, manufacturing and electronics sector outlooks, he says.
“We still believe services could fare better in 2023 but the uplift from services may not be as promising as we had anticipated, as shown by the 2Q services downgrade, and the extent of services’ improvement may be curtailed by the extent risk factors of global growth weakness, US banking sector issues and geopolitics will evolve,” explains Liew.
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Similarly, Maybank Research analysts Chua Hak Bin and Brian Lee have maintained their GDP growth forecast at 0.8% for 2023 and 2.2% for 2024, with manufacturing remaining tepid in the second half of 2023 before it recovers from the deep contractions of 1H2023.
Given that the growth downturn looks to be “quite shallow”, and that the risk of a recession has abated, Chua and Lee also see the Monetary Authority of Singapore (MAS) holding its current stance of appreciation at the scheduled meeting to contain core inflation prices, which could taper in the second half with easing services inflation and wage cost pressures.
However, considering the lingering labour market tightness they acknowledge that core inflation could potentially remain sticky and pick up in 2024. Scheduled wage increases and expansion of the progressive wage model to more sectors will likely sustain wage cost pressures next year, say the analysts.
They add that MAS will also likely be mindful of the inflation pressures from the 1% GST hike and sharp increase in carbon taxes — to $25 per ton of carbon dioxide equivalent from the current $5 — from the start of next year, which will lead to a jump in price levels in early 2024.
While RHB’s Gan and UOB’s Liew agree that MAS will keep its policy parameters unchanged in October, Kit Wei Zheng of Citi Investment Research says that although easing at the next meeting is “unlikely”, further tightening from the central bank should not be “ruled out” if it revises its end-2023 core inflation forecasts to above 3%.
Kit, who has kept to his earlier 2023 growth forecast of 1.2%, notes that although MAS managing director Ravi Menon was confident in early-July that inflation had “clearly” peaked and had “discernibly moderated”, an increased end-2023 core inflation forecast of 2.5% to 3.0% from its earlier projection of just 2.5% in April suggests that policy tightening is not off the cards if further adjustments are made.
