WITH additional downside risks posed by Brexit and China's corporate credit levels, Singapore's growth is expected to slow in the second half of 2016 - prompting the government to shave its full-year growth forecast to 1-2 per cent from an earlier 1-3 per cent.
With H1 growth already at 2.1 per cent - after Q2 growth matched Q1's 2.1 per cent - the new official projection implies dimmer prospects for H2. This means that at best, the government expects 2016's GDP growth to be on a par with 2015's; at worst, it foresees this year's performance being the poorest since 2009.
Indeed, Mizuho economist Vishnu Varathan noted that the asymmetry of the narrowing is revealing, rather than the narrowing itself. He said the government's move to lop off the top half of the previous 1-3 per cent forecast range "makes a deliberate point about the deterioration in risk assessment", and implies that H2 growth is expected to decelerate to below 2 per cent.
MTI, for its part, said on Thursday that its revised growth estimate takes into account the weaker global growth outlook, with additional downside risks stemming from Europe and China.
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, amid 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."
Asked by The Business Times why the government chose to narrow its full-year growth forecast downwards - compared with market expectations for a middle-of-the-road revised estimate of 1.5-2.5 per cent - MTI permanent secretary Loh Khum Yean said: "Our central view remains that growth in the second half is likely to slow but remain positive. The lower portion of the forecast range seeks to accommodate the possible materialisation of some of these further downside risks."
Still, OCBC economist Selena Ling said that the new 1-2 per cent growth projection was "slightly more bearish" than she had anticipated, since "H2 growth would have to potentially slip to zero for the full year to hit the lower one per cent floor". She expects 2016 GDP growth of 1.8 per cent.
But DBS economist Irvin Seah - whose full-year growth forecast stands at 1.5 per cent - does not think the revised estimate sends a negative signal. "In fact, it's a realistic projection of the current economic conditions as well as risks ahead. Actually, this set of figures confirms that MAS's (the Monetary Authority of Singapore's) April easing was the right move."
Mizuho's Mr Varathan agreed. "If the growth forecast range had been pushed down to 0-2 per cent - now that would have been a strong and unexpected statement. This downwardly revised figure just says that we went to the barbershop; no one is balding."
DBS, Mizuho, RBS, and UOB economists do not see room for another round of monetary policy easing in October, given the already neutral S$NEER (Singapore dollar nominal effective exchange rate) slope, which was adopted in April this year.
Indeed, MAS deputy managing director Jacqueline Loh reiterated on Thursday that Singapore's current monetary policy stance "remains appropriate for overall macroeconomic conditions in 2016". She added that 2016's narrowed growth forecast range falls within the planning parameters of the central bank's April policy decision.
Meanwhile, Q2's 2.1 per cent year-on-year growth marginally missed the official and market estimate of 2.2 per cent. This translated into 0.3 per cent growth overall on a quarter-on-quarter seasonally adjusted annualised basis, with the services sector contracting 0.6 per cent (worse than the forecast of 0.5 per cent growth, but better than Q1's 4.9 per cent contraction), and the manufacturing sector growing one per cent (better than the forecast of 0.3 per cent growth, but far slower than Q1's 18.7 per cent expansion).
While MTI flagged a host of external risks to growth, it also warned of domestic headwinds. For one, it said that the 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 such as semiconductors and biomedical manufacturing.
It said that the construction sector, too, is likely to weaken in the coming quarters, with firms becoming more pessimistic about their business outlook.
Still, MTI said that bright spots remain, citing tourism-related sectors and the information & communications sector.