'Green shoots' for Singapore as electronics start to recover

Singapore

SINGAPORE'S economy is starting to see "green shoots", with signs that the electronics manufacturing cluster had bottomed out mid-2019, OCBC Bank's chief economist said, but there is still a lack of clarity so long as the US-China trade issues remain unresolved.

"We had an inkling that electronics probably bottomed around the mid-year. We saw that in the NODX (non-oil domestic exports) numbers for October, and then we got the confirmation again in the IP (industrial production) numbers today," OCBC's Selena Ling said in a briefing with reporters on the bank's outlook for 2020.

Electronics shipments fell 16.4 per cent in October, an improvement over the 24.8 per cent contraction in the preceding month. In terms of output, electronics entered positive territory with a 0.4 per cent growth in October compared to the month earlier.

But whether it will see a strong pick-up next year will depend on several factors - one of which is external growth, Ms Ling said, noting that the International Monetary Fund's muted outlook for global growth in 2020 is true for most developed markets like the United States, China and Japan.

As for the US-China trade war, Ms Ling said there remains a lack of clarity over whether a "phase one" deal gets signed.

"Our baseline is that the 'phase one' deal will get signed, but it's a very low-lying fruit," she said, adding that China would ultimately need to demonstrate to the US that it is willing to make some concessions.

Even if the US-China trade war was resolved, Ms Ling said the next question is whether the economic slowdown is cyclical in nature or structural, as proponents of the former would be more bullish about growth in 2020.

"My sense is that some of the slowdown is a little bit structural in nature because you basically have ageing demographics, you have productivity growth that has been slowing across most of the major economies," she said, explaining the slower growth compared to the period before the global financial crisis in 2008.

As such, a V-shape recovery should not be expected, she said.

On the bright side, Ms Ling said Singapore's better-than-expected third-quarter economic performance has pushed the bank's Q4 and full-year growth forecast to 0.7 per cent and 0.6 per cent year-on-year respectively for 2019. For 2020, she expects GDP growth to be between 1 and 2 per cent year-on-year, with a midpoint of 1.5 per cent year-on-year. NODX may also print a slightly more positive 2 to 4 per cent year-on-year if there is no further escalation of US-China trade tensions.

However, Ms Ling cautioned that the labour market is expected to continue softening into 2020, due to both cyclical and structural factors.

Overall, she said it is still better to hold on to investments even in this uncertain climate because there is still more money to be made compared with sitting out of the financial markets, adding that one should expect sustained bouts of volatility.

Touching on Budget 2020, which has been widely touted to be an "Election Budget", Ms Ling noted that the past few Budgets have moved away from "cash handouts" for all citizens. Instead, she said it would be more targeted, possibly at lower-income households and lower-skilled workers. This is because of the long-term nature of the measures - including meeting the needs of an ageing population and fighting climate change - a planned Goods and Services Tax hike is meant to help fund, which calls for a more targeted approach in giving out revenue, Ms Ling said.