Private-sector economists lower full-year growth forecast to -6%

Singapore

PRIVATE-SECTOR economists now expect Singapore's gross domestic product (GDP) to contract 6 per cent this year, worsening slightly from earlier expectations of a 5.8 per cent fall, according to the latest quarterly Monetary Authority of Singapore (MAS) survey of professional forecasters released on Monday.

After a 13.2 per cent fall in the second quarter, the economy is expected to contract by a milder 7.6 per cent year on year in the third quarter.

For the expected recovery in 2021, respondents see full-year growth coming in at 5.5 per cent, up from 4.8 per cent in the last survey.

But OCBC head of treasury research and strategy Selena Ling noted "a significant degree of uncertainty attached to the 2021 outcome", with much depending on the speed and availability of a Covid-19 vaccine.

Sent out on Aug 12, the survey received 26 responses from private-sector economists. It does not represent MAS's views or forecasts.

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Full-year growth expectations worsened sharply for construction, at -23 per cent, compared to -11.4 per cent in the June survey. This was likely due to the worse-than-expected Q2 contraction of -59.3 per cent.

"Construction is likely past its worst with most dormitory workers able to resume work by mid- to late-August," said Maybank Kim Eng economist Lee Ju Ye, noting that most built projects will resume work by end of September amid new protocols.

But UOB economist Barnabas Gan sees softness as likely to continue into the second half, noting concerns about the spread of Covid-19 in worker dormitories.

The full-year forecast also turned grimmer for private consumption at -11.8 per cent, compared to -5.2 per cent earlier. This may have been due to the deeper-than-expected fall in Q2, of a record 28.2 per cent, said Mr Gan. The fall is expected to moderate in Q3, to -11.3 per cent year on year.

Softening labour market conditions are expected to hurt private consumption. Still, unemployment is forecast to be 3.5 per cent at the end of the year, improving marginally from the last 3.6 per cent forecast.

Expectations worsened slightly for accommodation and food services. Confidence there may be weighed down by manpower shortages due to slow progress on lifting of global travel restrictions, said Ms Ling.

But a smaller contraction is predicted for wholesale and retail trade, while better growth is expected for finance and insurance - 4.9 per cent, up from 3.1 per cent - and manufacturing, up marginally to 2.3 per cent.

Ms Ling cites several factors that have aided finance and insurance: strong risk-on sentiments since the re-opening of economies from June, dovish commitments by major central banks to keep monetary policy accommodative for longer, and yield-seeking investor behaviour due to the very low interest rate environment.

Non-oil domestic exports (NODX) are now forecast to grow 4.5 per cent, an improvement from the earlier forecast of zero growth.

This could reflect a brighter electronics exports outlook amid the 5G thrust, as well as market hopes that US-China tensions will not deteriorate significantly ahead of the Nov 3 US presidential elections, said Ms Ling.

Ms Lee noted that exports have been resilient amid the pandemic, with robust demand for semiconductors and pharmaceuticals, and boosts from items such as non-monetary gold and food preparations. "Outlook for exports is also improving as more countries reopen their economies and regional trade recovers," she added.

Inflation expectations have moderated since the June survey, to -0.4 per cent for headline inflation and -0.3 per cent for core inflation, from -0.5 per cent for both previously.

"The implications for MAS' monetary policy review in mid-October is muted as it is within the official inflation forecast range and official rhetoric suggest little impetus at this juncture to ease or tighten the S$NEER policy stance," said Ms Ling. Economists have generally been expecting the MAS to leave policy settings unchanged at the October meeting.

A tightening in global financial conditions remained the top perceived downside risk to growth, followed by an escalation in the Covid-19 pandemic and worsened tensions between the US and China.

As for upside risks, fewer respondents cited the possibility of global financial conditions easing. More saw a chance for fiscal stimulus and Covid-19 containment to aid growth.