Quick take: Singapore's growth prospects in 2016 remain challenging, says OCBC

THE Singapore economy grew by 1.8 per cent on a year-on-year basis in the fourth quarter of 2015, unchanged from the third quarter.

On a quarter-on-quarter, seasonally-adjusted annualised basis, the economy expanded by 6.2 per cent, extending the 2.3 per cent growth in the previous quarter, the Ministry of Trade and Industry (MTI) said on Wednesday.

For the whole of 2015, the Singapore economy expanded by 2.0 per cent, slower than the 3.3 per cent in 2014.

MTI said the Singapore economy is expected to grow at a modest pace of "1.0 to 3.0 per cent" in 2016.

Here are comments by Selena Ling, head of Treasury Research and Strategy at OCBC Bank:

"... The accompanying elaboration of the challenges, especially the downside risks in the global economic outlook, suggests some inherent dovishness. Note four domestic drags were cited, namely weak external demand weighing on exports, risks of lower oil prices on the marine & offshore segment as well as supporting precision engineering industry, weakening momentum in construction, and labour constraints constraining labour-intensive sectors like food services.

"Our 2016 GDP growth forecast remains at 2 per cent, assuming that a step-down in Q1 2016 momentum will stabilize on a year-on-year basis from Q2 2016 onwards.

"The sluggish growth and inflation dynamics continue to slightly push open the policy door for stimulus, be it on the fiscal or monetary front.

"We expect a more supportive tone to be set at the upcoming FY16 Budget where a neutral to a slightly modest budget deficit position could be in store, with the focus on retooling the Singapore economy and preparing the businesses and workforce for the challenges of the future economy.

"The monetary policy setting, on the other hand, may be more sensitized to the global environment, capital flows and market sentiments pending the maneuverings of major central banks including the FOMC, ECB, BOJ and PBOC."