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Singapore downgrades 2020 growth forecast on virus outbreak; 2019 GDP slows to 0.7%
SINGAPORE'S official growth forecast for 2020 has been downgraded, with authorities bracing for the possibility of negative growth should the novel coronavirus outbreak be more severe than anticipated, even as 2019 full-year growth came in consistent with earlier flash estimates.
The Ministry of Trade and Industry (MTI) is expecting full-year gross domestic product (GDP) growth to be between -0.5 per cent and 1.5 per cent, the ministry’s permanent secretary Gabriel Lim said on Monday morning.
"MTI’s baseline view at this juncture is for GDP growth to come in at around 0.5 per cent, the midpoint of the forecast range," Mr Lim said.
This is a worse outlook from the one MTI announced in November 2019, when it was expecting growth of 0.5 to 2.5 per cent. That forecast was made on the premise of a "modest pickup in global growth, along with a recovery in the global electronics cycle" in 2020, Mr Lim said.
This is because the Covid-19 outbreak is likely to dampen growth prospects of China and other affected countries in Asia.
Mr Lim said Singapore’s outward-oriented sectors like manufacturing and wholesale trade will be affected by the weaker growth outlook in several of its key final demand markets like China. The sharp fall in tourist arrivals as well as the decline in domestic consumption would will also hit the tourism and transport sectors as well as retail and food services.
However, he noted that there are "pockets of relative strength" in the Singapore economy, such as the construction sector and the information and communications sectors.
The last time Singapore saw negative full-year GDP growth was in 2001 during the dotcom bust, when there was a 1.1 per cent contraction, MTI officials said.
However, Yong Yik Wei, director of MTI's economics division, noted that the ministry's central scenario is not a full-year recession, but slow growth due to the significant degree of uncertainty.
As for 2019, full-year economic growth came in at 0.7 per cent, matching flash estimates made in early January. Mr Lim said this growth was supported by the sectors of finance and insurance, other services and business services. However, it is far slower than the 3.4 per cent growth recorded in 2018.
It is also the slowest growth since the global financial crisis in 2009, which saw an expansion of just 0.1 per cent year on year.
This comes even as Singapore's GDP growth for the fourth quarter of 2019 exceeds advanced estimates with a 1 per cent expansion, faster than Q3's 0.7 per cent growth.
On a quarter-on-quarter seasonally-adjusted annualised basis, however, the economy expanded at a slower pace of 0.6 per cent compared to the 2.2 per cent growth in the preceding quarter, MTI said.
The construction sector grew by 4.3 per cent year-on-year, accelerating from the 3.1 per cent expansion in the third quarter. MTI attributed the growth to both public sector and private sector construction works.
Growth in the information and communications sector came in at 4.5 per cent year on year, slightly higher than the 4.4 per cent recorded in the third quarter. MTI said this was primarily driven by the IT and information services segment, which continued to benefit from enterprise demand for IT solutions.
The finance and insurance sector grew by 4.0 per cent year on year, extending the 4.1 per cent growth in the third quarter. Growth was led by activities auxiliary to financial services, which was in turn boosted by a strong expansion in credit card network activities, the ministry said.
Growth in the business services sector picked up to 1.7 per cent on a year-on-year basis, from the 1.1 per cent registered in the third quarter, supported by expansions in the professional services, real estate and "others" two segments, MTI said.
The accommodation and food services sector posted year-on-year growth of 2.5 per cent, faster than the 1.9 per cent achieved in the third quarter. Both the accommodation and food services segments expanded, MTI said.
The transportation and storage sector grew by 0.8 per cent year on year, better than the flat growth recorded in the third quarter. The ministry said growth was largely driven by the air transport segment, which saw an increase in air passengers handled.
Meanwhile, the struggling manufacturing sector shrank by 2.3 per cent year on year, extending the 0.7 per cent contraction in the third quarter. The performance of the sector was weighed down by output declines in the electronics, chemicals, transport engineering and general manufacturing clusters, which more than offset output expansions in the biomedical manufacturing and precision engineering clusters, MTI said.
The wholesale and retail trade sector contracted by 1.9 per cent year on year, moderating from the 3.5 per cent decline in the third quarter. MTI said within the sector, the wholesale trade segment shrank on account of contractions in the machinery, equipment and supplies, and fuels and chemicals sub-segments. The retail trade segment also contracted due to a decline in both motor vehicular and non-motor vehicular retail sales volumes.
Elsewhere, MTI's growth outlook for the US and eurozone economies in 2020 remains broadly unchanged, Mr Lim said. Growth in the US is expected to moderate this year, while growth in the eurozone economy in 2020 is expected to be similar to last year's.
At the same time, the ministry noted that uncertainties in the global economy remain. Disruptions to global supply chains and production could be prolonged as a result of Covid-19 if the outbreak becomes more severe than anticipated.
In addition, trade relations between the US and China remain uncertain, especially as they turn to "more contentious issues" in the next phase of their negotiations, notwithstanding the Phase One trade deal, Mr Lim said.
He added that geopolitical tensions in the Middle East could affect financial and commodity markets, which will have negative spillover effects on the region and Singapore.