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IN line with the weaker global growth outlook, the Singapore economy is now expected to expand 1-2 per cent this year, after the Ministry of Trade and Industry (MTI) on Thursday narrowed down its previous growth forecast of 1-3 per cent.
The new official projection takes into account additional downside risks such as Brexit-related uncertainties, and the potential for spiking debt defaults in China amid rising corporate credit levels there.
MTI also announced that the economy grew 2.1 per cent in the second quarter of 2016 - slightly below the official and market estimate of 2.2 per cent, and on a par with Q1's growth of 2.1 per cent.
This translated into 0.3 per cent growth overall on a quarter-on-quarter seasonally adjusted annualised basis - worse than the government and private-sector forecast of 0.8 per cent expansion, but better than Q1's 0.1 per cent growth.
Both the manufacturing and services sectors' figures were revised from the advance estimate. The manufacturing recovery turned out better at 1.1 per cent (previously forecast at 0.8 per cent, and higher than Q1's 0.5 per cent contraction), while services' growth was tempered to 1.4 per cent (previously forecast at Q1's expansion rate of 1.7 per cent).
In sequential terms, manufacturing grew one per cent (better than the forecast of 0.3 per cent growth, but slower than Q1's 18.7 per cent expansion), while services contracted 0.6 per cent (worse than the forecast of 0.5 per cent growth, but better than Q1's 4.9 per cent contraction).
Looking ahead, MTI flagged a host of downside risks - both globally and domestically.
Said MTI: "First, Brexit has heightened uncertainties in the UK and EU economies. If the impact on consumer and business confidence is more severe than expected, there could be a sharp pullback in consumption and investments, which could in turn lead to a further slowdown in economic growth. The uncertainties could also spark bouts of risk aversion and volatility in global financial markets, with potential knock-on effects on global growth."
"Second, amidst rising corporate credit levels in China, there is a risk that debt defaults could spike as the economy continues to restructure, thus leading to a tightening of financial conditions. If this materialises, the Chinese economy could slow down more sharply than expected."
The ministry also warned that manufacturing sector's improvement may not be sustained in light of sluggish global economic conditions, especially since the recovery has been owed to "pockets of strength" in segments like semiconductors and biomedical manufacturing.