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Singapore reviewing again 2019 growth forecast: MAS chief

Growth for Q2 and also the year as a whole are expected to be weaker

MAS expects year-on-year economic growth to be weaker in the second quarter than a decade-low 1.2 per cent achieved in the first quarter.


BARELY a month after the government lowered the upper-range of the full-year growth forecast by one percentage point to between 1.5 and 2.5 per cent, it is again reviewing this estimate, as recent indicators suggest that second-quarter growth could even be weaker than the 1.2 per cent recorded in the quarter before.

Monetary Authority of Singapore (MAS) managing director Ravi Menon said: "GDP (gross domestic product) growth for the year as a whole is likely to be weaker than earlier envisaged."

This less-than-stellar performance to date has prompted the MAS and the Ministry of Trade and Industry (MTI) to review the full-year GDP growth forecast, he said at the central bank's annual report media briefing on Thursday. The review comes on the back of last month's downgrading by the MTI of the growth forecast for the year to between 1.5 and 2.5 per cent, from 1.5 to 3.5 per cent.

Still, when asked if the review would bring the current forecast even lower, Mr Menon replied that "it's too early to tell where we would land".

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MAS is waiting for the second-quarter growth figures to come in next month. The MAS chief noted that the current full-year forecast is premised on the economy stabilising in the third quarter, with a modest pickup thereafter.

"But the strength of this pick-up, given the softer external environment and ongoing trade conflict, is unlikely to offset the weakness in the first half."

Growth in the first half of the year is looking to be quite weak, particularly in the trade-related sectors, as the ongoing US-China trade war continues to bite. The other two engines of global growth - manufacturing and investment - have also shifted into lower gear. Mr Menon said: "We are now in the throes of a trade (and technology) war, and all three engines have indeed stalled." He described the broadening of the trade dispute to the technology front as a new and unknown risk on the horizon.

A prolonged technology conflict could lead to a bifurcation of technology infrastructures globally; this could in turn significantly impair the process of knowledge creation and diffusion - and, ultimately, productivity and income growth.

But he added that though downside risks have risen, the global economy is not headed for a crash because major economies are loosening their monetary policies, and service and consumption are resilient.

"We need to be alert, but there is no need to be alarmed."

He added that the Singapore economy is "well placed" for the rougher ride ahead.

In addition, the country's financial system and corporate and household fundamentals remain sound. The central bank's most recent stress tests indicate that Singapore's financial system would stand up to a severe global downturn resulting from a bruising trade war.

The MAS chief also said that one should look beyond the headline growth figures and take stock of the composition of growth in the domestic economy.

The modern services cluster - financial, information and communications and professional services - will be the main growth driver this year, supported by healthy regional demand and increased investments in digitalisation as the domestic economy undergoes transformation.

In fact, the financial services sector is expected to outpace the overall economy this year.

Domestic industries - construction, retail and food and beverage (F&B), health and education services - will make a modest and positive contribution to overall growth, as the construction sector turns around and retail and F&B benefits from firm labour demand conditions and efforts to lift productivity.

But the trade-related cluster - manufacturing, wholesale trade, transport and storage - will continue to take the brunt of the maturing of the global technology sector cycle, and the ratcheting of trade tensions.

On a separate note, Mr Menon emphasised that the recent inclusion of Singapore in the US Treasury watch list over its "uncommon" exchange rate and its material current account surplus has no direct consequences for the economy or the conduct of MAS' monetary policy.

As a small, highly open economy, Singapore secures price stability through intervention in the foreign exchange markets by mopping up large and persistent capital inflows; it is not currency manipulation to gain export advantage, he said.

The MAS has been in active dialogue with the US Treasury to ensure that Singapore's monetary policy framework and the role of foreign exchange intervention operations are well understood. The US Treasury has acknowledged in its report the uniqueness of Singapore's exchange-rate-based monetary policy system, he said.

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