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For S'pore economy, a heavy note of caution

Growth could come in as low as 1 per cent next year - one of the most pessimistic projections in over a decade

The Singapore economy could grow as little as one per cent next year, according to official forecasts - marking one of the most pessimistic projections in at least 15 years, outside of periods of acute crisis.


THE Singapore economy could grow as little as one per cent next year, according to official forecasts - marking one of the most pessimistic projections in at least 15 years, outside of periods of acute crisis.

Announcing the government's 2016 GDP growth forecast for the first time on Wednesday, the Ministry of Trade and Industry (MTI) said that it expects the Singapore economy to expand by 1 to 3 per cent next year.

The lower half of that projection falls below Singapore's economic growth potential of 2 to 4 per cent per year, from now to 2020 - itself a downgrade from the 3 to 5 per cent expansion initially envisaged.

Economists told The Business Times that the latest growth forecast reflects the government's cautious view going forward, and serves to temper expectations about future growth prospects.

Referring to next year's growth outlook as "modest", MTI Permanent Secretary Ow Foong Pheng said at a media briefing: "While sectors such as finance & insurance and wholesale trade are likely to support growth, the manufacturing sector is likely to remain weak."

She also noted that sector-specific factors may also weigh on growth. In the marine & offshore segment, sustained low oil prices will continue to dampen rig building activities. Growth in labour-intensive sectors - such as retail and food services - could also be pulled down by labour constraints, she said.

As for the external outlook, MTI said that it expects global growth to improve in 2016.

"(This would be) supported by a strengthening of growth in the advanced economies and improvements in most emerging market and developing economies," said MTI, even as it flagged downside risks to the global growth outlook.

Risks include the possibility of a "significant drop in demand" in China, should ongoing reforms to re-balance the economy falter, as well as the anticipated normalisation of US monetary conditions.

Pointing out that the lower bound of the 1 to 3 per cent growth forecast range is unusual in a non-crisis year, DBS economist Irvin Seah said: "(The 1 per cent growth figure) is a real possibility. We cannot discount the downside risks, given the uncertainties which could pop up in 2016."

Added UOB economist Francis Tan: "I think the government has placed a pretty big weight on the factors affecting slow growth this year, (which they expect to) extend into 2016. They probably do not want to sound too optimistic, because it's hard to find a catalyst that will come in 2016 to boost growth to the usual 2 to 4 per cent, rather than this 1 to 3 per cent range. They are definitely setting expectations on the cautious side."

MTI tends to announce in November its growth forecast for the following year. For 2015 and 2014, MTI projected growth of 2 to 4 per cent.

In the last 15 years - save periods of crisis and significant external shocks - the lower ends of MTI's year-ahead forecasts have at least hit the 2 per cent mark. In fact, the lower bound of the range has stood at 3 per cent four times, at at least 4 per cent four times, and at 5 per cent once.

The exceptions to these were forecasts for the years 2002 (-2 to 2 per cent, post-September 11), 2009 (-1 to 2 per cent, during the global financial crisis), and 2012 and 2013 (1 to 3 per cent, during the escalating eurozone debt crisis).

As such, economists like OCBC's Selena Ling were taken aback by the government's modest 2016 growth forecast, since they believe the downside risks to growth have already been priced in.

"The 1 to 3 per cent range is a conservative estimate in our view. To get a further deterioration from this year, you'd basically need something worse to happen - a curveball, something unforeseen ... So I'm scratching my head, wondering what can be the risk that is not already built into the current picture," said Ms Ling.

"I feel maybe they're low-balling it. Because in the past few years we've started the year on an optimistic note, and as the year progresses it all goes downhill as soon as we enter the second half. So they could be just setting expectations lower. And if things start to come around next year, then you have a happy problem - you'd be revising numbers upwards rather than downwards."

UOB's Mr Tan agreed with Ms Ling's assessment, saying it could be a case of "under-promise now, over-deliver later".

Still, DBS's Mr Seah and ING economist Tim Condon think the sobering 2016 forecast signals something more important - a "new normal" for Singapore's growth trajectory.

Said Mr Condon: "What that also means is that for the MAS (Monetary Authority of Singapore), sub-2 per cent growth is not something they need to (panic about). In the trade-off between growth and inflation, the central bank will have a bit more flexibility on the downside."