Economists trim Singapore's 2019 growth forecast to 2.1%

Singapore

TRADE protectionism remains the top growth risk cited by private-sector economists, who have further trimmed their 2019 forecast for Singapore to 2.1 per cent, in the Monetary Authority of Singapore's (MAS) quarterly survey of professional forecasters, released on Wednesday.

Down from 2.5 per cent in March's survey, the latest figure falls within the Ministry of Trade and Industry's forecast range of 1.5 to 2.5 per cent, which was lowered in May from the previous range of 1.5 to 3.5 per cent.

But the picture could change drastically if downside risks materialise. "Singapore will likely slip into a recession if the United States and China cannot reach a trade deal and Trump decides to hike tariffs on the remaining import items from China," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye, who otherwise forecast 1.6 per cent growth.

The survey, which does not reflect the central bank's views or forecasts, was sent out in May and received 22 responses from economists and analysts who track Singapore's economy.

Respondents continued to peg the most likely growth range for 2019 as 2.0 to 2.4 per cent, with a 33.9 per cent chance of this outcome.

But they also saw an increased chance of growth coming in between 1.5 and 1.9 per cent - 33.1 per cent, up from 13.6 per cent in March.

Expectations worsened for all sectors except construction, for which 3.5 per cent growth is predicted, up from 2.1 per cent in March.

Growth forecasts turned negative for manufacturing (-0.2 per cent, compared to 2 per cent previously), wholesale and retail trade (-0.3 per cent, from 1.5 per cent), and non-oil domestic exports (-2.1 per cent, from 1.1 per cent).

"Overall, externally exposed sectors have been subject to downgrades to the outlook, with manufacturing turning contractionary - and this is hardly surprising given the nature of risks," said Mizuho Bank head of economics and strategy for Asia and Oceania Vishnu Varathan.

Dr Chua and Ms Lee said they think the manufacturing and export contraction may worsen in coming months, with the US having raised tariffs on China imports on June 1.

The trade war is also broadening to the use of export controls aimed at China technology companies such as Huawei, which will further intensify the disruption to the tech supply chain, they added.

Furthermore, the manufacturing-led slowdown is broadening to services, including wholesale and retail trade, transport and storage, as well as finance and insurance, they said. "Tourism was a bright spot in 2018 but is starting to also slow on the back of weaker visitor arrivals, especially from China."

The top downside risks remain trade protectionism - cited by 94.1 per cent of respondents - and a slowdown in China. Correspondingly, an easing of trade tensions and stabilisation of growth in China were two of the top upside risks.

A rising share of respondents saw the possibility of a global downturn as another downside risk, with 29.4 per cent citing it in the latest survey, up from just 5.3 per cent in March.

For upside risks, a strengthening tech cycle and easing financial conditions were also named.

Expectations for headline inflation and core inflation in 2019 both dipped further. Headline inflation is forecast at 0.9 per cent, down from 1.1 per cent in the March survey. Core inflation is expected at 1.4 per cent, down from 1.7 per cent.

This is in line with the official forecast ranges of 0.5 to 1.5 per cent for headline inflation, and 1 to 2 per cent for core inflation.

As for the labour market, respondents stuck to their expectation of a 2.2 per cent unemployment rate.

If the US and China stay stuck in the current stalemate, the MAS will likely maintain its current appreciation bias at its next policy meeting in October, said the Maybank economists.

But if the trade war worsens and US tariffs are raised on remaining China imports, the MAS might ease policy then, they added.

While growth is expected to pick up in 2020, respondents' forecasts have been trimmed to 2.3 per cent, from 2.4 per cent in March.

The hope for a modest pick-up in 2020 "almost certainly factors in easing by the US Federal Reserve and China", said Mr Varathan.

He further noted that the latest survey may not have captured Singapore's inclusion on the US Treasury's monitoring list for currency practices on May 29 - a move that is likely to result in "perceptions of more latent risks from 'America First' policies coming through".

The expectation of improved growth into 2020 suggests that respondents expect some improvement to current economic drag factors in the next six to 12 months, said UOB economist Barnabas Gan. UOB's own forecast for 2020 growth is 2 per cent, the same as for 2019.

"The chief silver lining to the dark clouds forming at this point would be the hope for some form of resolution in the ongoing US-China trade spat into the next year," he said.

This could lead the return of global confidence and fan growth tailwinds for export-oriented economies, Mr Gan added.