The Ministry of Trade and Industry (MTI) has narrowed Singapore’s GDP growth forecast for 2022 to 3% to 4%, from 3% to 5%, citing an unstable global economic environment that has “deteriorated further”.
Singapore’s economy grew by 4.4% y-o-y in the second quarter, slightly reduced from the advanced estimates of 4.8% released last month. While the 2Q growth came in faster than the preceding 1Q’s 3.8% y-o-y growth, on a q-o-q basis, it was a slight contraction of 0.2%.
This marks a reversal from the earlier 0.8% expansion, spurring some economists from Oversea-Chinese Banking Corp (OCBC) and Citi to suggest that Singapore is heading into a technical recession, which is defined as two consecutive quarters of q-o-q contraction.
At the Aug 11 briefing, Permanent Secretary for Trade and Industry Gabriel Lim says that since the previous survey for 1Q2022 was released in May, the downside risks in the global economy remain “significant” with the Russia and Ukraine conflict showing no signs of abating, thereby exacerbating global inflationary pressures.
More aggressive tightening monetary policy is expected to weigh on growth in major advanced economies such as the US and the Eurozone, which is at risk of a sharp slowdown towards the end of the year due to the persistent disruption in natural gas supplies from Russia.
Should there be “disorderly market adjustments” in response to “stronger-than-expected” inflationary pressures, financial stability might be affected, adds Lim.
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Meanwhile, China — which is playing an increasingly pivotal economic role as both a global buyer and seller — continues to grapple with a deepening property market downturn and recurring domestic Covid-19 outbreaks which are countered with severe lockdowns. As such, Lim warns that the disruption to global supply chains might persist for the rest of the year.
Healthy trading volumes
Against this backdrop, Lim warns that the growth outlook for some outward-oriented sectors in the Singapore economy has weakened. China, for one, is a key importer of petroleum and chemicals products from Singapore. In 2Q2022, Singapore’s chemicals cluster and the fuels and chemicals segment — part of the wholesale trade sector — contracted by 2.7% on a q-o-q seasonally-adjusted basis, a reversal from the 3.2% growth in 1Q2022.
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The wholesale trade sector grew by 1.9% y-o-y, slower than the 4.8% growth achieved in the previous quarter. Within the sector, the machinery, equipment and supplies segment expanded on the back of robust electronics exports, even as the fuels and chemicals and “others” segments — comprising a diverse range of products, including metals, timber and construction materials, household equipment and furniture — contracted.
In spite of this, Enterprise Singapore (EnterpriseSG) raised its full-year trade forecasts after export performance in the 2Q2022 came in “better than expected” due to higher oil prices and “robust” global semiconductor demand, which is likely to continue for the year.
Total merchandise trade is expected to grow by 15% to 16% this year, up from 8% to 10% previously, while non-oil domestic exports (Nodx) is expected to grow by 5% to 6%, up from the previous projection of 3% to 5%. “These should support growth in oil trade in nominal terms and Nodx respectively, and in turn total trade,” writes EnterpriseSG in its 2Q2022 trade performance review.
The darker clouds aside, total merchandise trade grew 28.1% y-o-y in the second quarter, extending the 20.8% growth in 1Q2022, supported by both oil and non-oil trade. Oil trade grew 69.5% in the second quarter of this year, thanks to higher oil prices, while non-oil trade expanded by 19.9%. In real terms, total trade growth was positive but lower at 7.6% and 6.0% in 2Q2022 and 1Q2022 respectively.
The outlook for several sectors in the Singapore economy has improved as well, with the strong recovery in air passengers and international visitor arrivals expected to benefit aviation and tourism related sectors like air transport and arts, entertainment and recreation, as well as consumer facing sectors like food and beverage services, which accelerated to 28.0% y-o-y, from the 1.9% in the previous quarter. MTI reports that all segments within the standout sector expanded, with activity supported by the lifting of most domestic restrictions since April.
“Singapore has transitioned to living with Covid-19 with the progressive removal of almost all of its domestic and border restrictions. This has in turn supported the recovery of segments of the Singapore economy that had been badly affected by the pandemic. Notably, the recovery in air passengers handled at Changi Airport and international visitor arrivals to Singapore has been stronger than expected,” says Lim.
He adds that easing travel restrictions have also bolstered the recovery of the professional services sector, which expanded by 6.8% y-o-y, extending the 7.6% growth in the preceding quarter, as firms can now “better engage” their overseas clients.
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Inflation easing?
For the moment, economists such as Citi’s Kit Wei Zheng and Jester Koh have chosen to turn more cautious. They now expect full year GDP to grow at 3.2%, down from an earlier estimate of 3.5%.
Other economists such as RHB’s Barnabas Gan and OCBC’s Selena Ling, meanwhile, are keeping their current estimates at 3.2% and 3.5% to 4%, respectively. Both Gan and Ling are flagging a further moderation in manufacturing momentum, especially given the high base last year. “The services sector would have to do the heavy lifting from here,” says Ling.
Maybank’s Chua Hak Bin and Lee Ju Ye, similarly, are keeping their forecast, although it is already at a below consensus and below official level of 2.8%. “The boost from the reopening tailwinds will dissipate, while global headwinds including rising US and global interest rates, China’s slowdown, and a probable Europe recession will dampen exports and trade-related services.”
Furthermore, with higher costs of living from inflation and domestic interest rate increases, consumers might curtail spending. “The crypto crash and fallout may slow growth in infocomm and finance, sectors which accelerated during the pandemic,” add the Maybank economists.
Jamus Lim, an associate professor of economics at ESSEC Business School Asia-Pacific, says that official consumer price index (CPI) updates — which signifies inflation — have shown few signs of reaching a peak.
“The June CPI headline rate of 6.7% is the highest for more than a decade, and is approaching levels comparable to the post-global financial crisis period,” says Lim. “I expect inflation in July to remain elevated and this will erode much of the benefits of the otherwise strong growth performance of the Singapore economy.”
Edward Robinson, deputy managing director of economic policy and chief economist at the Monetary Authority of Singapore (MAS), “affirms” that the central bank’s moves to strengthen the Singdollar thus far have been “appropriate”. The next policy review is scheduled for October this year.
“We will carefully examine all factors pertinent to inflation developments and the outlook for 2023. We will specifically assess the cumulative effects of the past tightening moves since October 2021 on the economy,” says Robinson at the same briefing as MTI’s Lim.
Overnight, US reported inflation for July eased to 8.5% from 9.1% in June, in line with lower energy costs. From Robinson’s perspective, that is a rate somewhat lower than expected. The data from the current 3Q2022 will be an important quarter to gauge the movement of global inflationary pressures.
“For Singapore, we have given guidance earlier that we do expect core inflation to rise a little in 3Q2022 before levelling off,” he says, while noting that there still remains “significant uncertainties” in the near-term.
