Singapore’s economy grew by 0.7% on a y-o-y basis in the 2Q2023 according to advance estimates released by the Ministry of Trade and Industry.
Overall gross domestic product (GDP) was dragged by the manufacturing sector, which contracted by 7.5% on a y-o-y basis. The sector’s weak performance was due to output declines across all manufacturing clusters except for transport engineering. On a q-o-q seasonally adjusted basis, the sector shrank at a slower pace of 1.3% compared to the 4.5% contraction in the quarter before.
Construction, on the other hand, expanded by 6.6%, extending the 6.9% growth in the 1Q2023. Growth during the quarter was supported by expansions in both the public and private sector construction output. Q-o-q, the sector expanded by 2.6%, accelerating from last quarter’s 0.3% growth.
Services producing industries saw overall expansions led by accommodation & food services, real estate, administrative & support services and other services, which expanded by 6.1% on a y-o-y basis. On a q-o-q basis, however, the sector expanded by 0.1%, easing from the 1.9% growth seen in the previous quarter.
The wholesale & retail trade and transportation & storage sectors collectively grew by 2.6% y-o-y in the 2Q2023, turning around from the 0.7% contraction in the previous quarter. All sectors within the group expanded. Q-o-q, the sectors expanded by 3.4% collectively, rebounding from the 0.5% contraction in the previous quarter.
The group of sectors comprising the information & communications, finance & insurance and professional services sectors grew by 1.5% y-o-y as all sectors – except the finance & insurance sector – expanded. Q-o-q, the sectors expanded by 1.7% collectively, reversing from last quarter’s 1.6% contraction.
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The quarter’s GDP growth stood lower than market watchers’ estimates as they expected GDP for the 2Q2023 to grow by 1.5%.
On a q-o-q seasonally adjusted basis, the economy expanded by 0.3%, a turnaround from the 0.4% contraction in the 1Q2023.
GDP advance figures stood above analysts’ expectations
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While Singapore’s preliminary 2Q2023 GDP numbers narrowly missed a technical recession and stood above economists’ estimates, Singapore is not out of the woods yet in terms of the risk in facing a technical recession for the 1H2023.
This is especially if the contraction in June’s manufacturing sector turns out to be worse than MTI’s projected figures, says Alvin Liew, senior economist at UOB.
In the 2Q2023, growth continued to be dragged by the weakness in manufacturing while the economy was propped up by growth in the services sector. Construction activity also rose on a y-o-y and a q-o-q basis during the quarter.
For UOB’s Liew, he is keeping his “more conservative” GDP growth forecast of 0.7% for 2023. Liew’s estimate is near the lower end of the official growth forecast range of 0.5% - 2.5%.
“Despite the 2Q growth outcome beating expectations, external developments continue to affirm our cautious growth outlook for Singapore this year, especially amid weak external demand and manufacturing activity,” he writes.
Maybank Securities economists Chua Hak Bin and Brian Lee have also kept their GDP estimate of 0.8% unchanged even though MTI’s advanced estimates for Singapore’s 2Q2023 GDP stood above their estimate of a 0.8% contraction.
“Manufacturing is expected to remain tepid in the second half due to weak external demand, with the modest export boost from China’s reopening insufficient to offset weakening demand from other regions,” say Chua and Lee.
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They also note that while services may remain supported by consumer-facing segments thanks to the recovery in visitor arrivals to Singapore, they still expect to see growth in the services sector to ease with “fading reopening tailwinds and slowing visitor arrivals momentum”.
Furthermore, with real retail sales growth slowing for the third straight month to 1% in May and the potential softening of trade-related services from a persistent manufacturing downturn, Maybank’s Chua and Lee are expecting MTI to narrow their 2023 GDP forecast range to 0.5% to 1.5% when the final 2Q2023 GDP figures are released in August.
“Our base case is for the MAS to maintain the current appreciation stance at the October meeting to contain core inflation pressures,” the analysts write.
“Core inflation may taper in the second half with easing services inflation and wage cost pressures with growth slowing. Nonetheless, core inflation may remain sticky downward given lingering labor market tightness, especially in reopening sectors like accommodation, food and beverage (F&B) and retail trade which are still seeing elevated vacancy rates,” they add.
On their inflation forecast, Chua and Lee are taking a leaf out of the Monetary Authority of Singapore’s (MAS) guidance by lowering their average headline inflation forecast to 5.1%, down from 5.6% previously. Their core inflation estimate is now at 4.3%, down from 4.5% previously, in line with MAS’s recently-lowered forecast range of 4.5% to 5.5% for headline inflation and 2.5% to 3% for core inflation.
“We expect core inflation to ease to about +3% by year-end, in line with the revised MAS forecast of +2.5% to +3%. Our model suggests that the Singapore dollar nominal effective exchange rate (S$NEER) is currently at about +1.9% above the mid-point of the band,” they write.
RHB Bank Singapore’s Barnabas Gan is also keeping his GDP growth estimate to 2.0% in 2023, which is the highest among the three houses featured here.
The analyst is also more positive on the recovery of the economy, with him seeing that the recovery momentum is likely to be observed in the 2H2023.
“Singapore is clearly showing very early hints of a recovery into 2H2023; the economy has seen a recovery in momentum in high-frequency data in both non-oil domestic exports (NODX) and industrial production (IP),” he writes. “Higher tourism and retail trade are also likely to be observed in 2H2023-2024 due to several noteworthy performances and seasonal factors.”
He adds: “Globally, we also see risk-taking behaviour following the rally in selected global equities amid the expectations of near-peak rates in developed economies.”
