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Singapore's Q4 growth seen steady, but trade war casts shadow

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Singapore's economy likely maintained a steady pace of growth in the fourth quarter as the manufacturing sector outperformed forecasts, but simmering trade tensions between the United States and China could slow the momentum next year.

[SINGAPORE] Singapore's economy likely maintained a steady pace of growth in the fourth quarter as the manufacturing sector outperformed forecasts, but simmering trade tensions between the United States and China could slow the momentum next year.

Gross domestic product (GDP) in the October-December quarter is expected to have expanded 2.3 per cent from the same period a year earlier, according to the median forecast of nine economists in a Reuters survey, slightly faster than growth of 2.2 per cent in the third quarter.

"We expect the manufacturing recovery in the fourth quarter to be short-lived, driven largely by front-loading of exports before potential US tariff hikes on China goods," said Chua Hak Bin, a Maybank Kim Eng economist.

Six economists with quarterly forecasts estimated the economy would expand 3.2 per cent on an annualised and seasonally adjusted basis, up from 3.0 per cent in the July-September quarter.

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The Ministry of Trade and Industry is due to release advance fourth-quarter and full-year 2018 GDP estimates on Jan 2 at 8:00am.

Some economists said that while the trade-reliant economy's growth is expected to slow next year, it may still expand at a sufficiently robust pace to justify more tightening by the Monetary Authority of Singapore.

"We are looking at further tightening of monetary policy in April," said UOB economist Alvin Liew, who has forecast the economy will grow 3.4 per cent in 2018.

But he said risks to his outlook for next year were any sudden worsening of US-China trade tensions as well as a significant drop in oil prices.

Singapore's central bank tightened monetary policy twice in in 2018. The MAS said its latest tightening in October was driven by solid domestic factors, including improving labour market conditions, core inflation approaching 2 per cent and an economy running slightly above potential.

The government has forecast GDP growth for 2018 to come in at between 3.0 and 3.5 per cent versus a three-year high of 3.6 per cent in the prior year. It has a wide range for 2019's GDP growth forecast of 1.5 to 3.5 per cent.

However, a significant deterioration in the growth outlook will limit the chances for further tightening.

"The US-China trade war and tightening monetary conditions will start to weigh down on Singapore's growth. Inflation pressures will ease on the back of lower growth, falling oil prices and tighter credit conditions," said Maybank's Chua who expects the MAS to stay on hold in April.

He expects economic growth in 2019 to slow to 2.2 per cent against an estimated 3.2 per cent expansion this year.

REUTERS