Singapore's economy grows 3.9% in Q2; expected to slow down in H2 2018

SINGAPORE'S economic growth is expected to slow down in the second half of this year, as the Ministry of Trade and Industry (MTI) kept to its 2018 forecast of 2.5 to 3.5 per cent in 2018 even with trade tensions weighing on the outlook.

This follows the "strong performance" in the first half of year, said the MTI, where the economy clocked in growth of 3.9 per cent year-on-year in the second quarter of 2018, easing from the first three months when the economy expanded 4.5 per cent.

The latest Q2 figure is above advance estimates of 3.8 per cent but below market consensus forecast of 4.1 per cent  growth.

But the step-down in growth in the second half of 2018 was anticipated and taken into account in the central bank baseline, said Monetary Authority of Singapore's (MAS) deputy managing director Jacqueline Loh.

Accordingly, the current monetary policy stance is appropriate, she said.

In its last monetary policy statement in April, the MAS opted to slightly increase the slope of the Singdollar nominal effective exchange rate (S$NEER) policy band to allow for "modest and gradual" appreciation.

On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 0.6 per cent, moderating from the 2.2 per cent growth in the preceding quarter.

Looking ahead, the MTI said that growth in several of Singapore's key demand markets such as the US and China is expected to ease in the second half of the year. The ministry also highlighted that uncertainties and downside risks in the global economy have increased since early 2018.

The first was the recent tariff measures by the US on its trade partners, which could result in a "vicious cycle" of tit-for-tat retaliatory measures. 

The second was generally tightening financial conditions, which could lead to faster-than-expected normalisation of monetary policy in the US, triggering "disorderly" outflows from emerging markets in the region. 

However, Singapore's growth will continue to be supported primarily by outward-oriented sectors, such as manufacturing, finance & insurance, wholesale trade, and transportation & storage, said the MTI. 

Despite the downside risks, economists said that their growth projections for the year remain on track.

OCBC economist Selena Ling kept her full-year forecast of 3 per cent. "The option for a further gradual tightening of monetary policy at the October MPS remains on the table in our view, given that domestic core inflation is likely to cross the 2 per cent year-on-year handle as early as August," she added.

DBS economist Irvin Seah noted that clouds are gathering on the horizon, as Singapore could be indirectly impacted by the US-China trade spat, while tighter liquidity conditions and mounting pressure on regional currencies could also weigh down investor confidence and business sentiment.

But he, too, maintained his forecast of 3 per cent for 2018 GDP growth. He warned that Q3 growth is likely to be the "weakest" this year, which would pare down consensus expectations for the full-year growth rate.

"Watch trade figures in the coming months for telltale signs for slowdown in growth," he said.