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S'pore economy shows 'green shoots' as electronics bottoms out: OCBC

SINGAPORE'S economy is starting to see "green shoots", with signs that the electronics manufacturing cluster has bottomed out in mid-2019, OCBC Bank's chief economist said, but there is still a lack of clarity so long as the US-China trade issues remain unresolved.

"We had an inkling that electronics probably bottomed around the mid year. We saw that in the NODX (non-oil domestic exports) numbers for October, and then we got the confirmation again in the IP (industrial production) numbers today," OCBC's Selena Ling said in a briefing with reporters on the bank's outlook for 2020.

Electronics shipments fell 16.4 per cent in October, an improvement over 24.8 per cent contraction in the preceding month. In terms of output, electronics entered positive territory with a 0.4 per cent growth in October compared to the month earlier.

But whether it will see a strong pick-up next year will depend on several factors - one of which is external growth, she said, noting that the International Monetary Fund's muted global growth outlook for 2020 is true for most developed markets like the United States, China and Japan.

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As for the US-China trade war, Ms Ling said the uncertainty over whether a "phase one" deal gets signed is causing markets to "swing around like a pendulum" depending on the headline of the day on whether there is a deal or no deal.

"Our baseline is that the 'phase one' deal will get signed, but it's a very low-lying fruit," Ms Ling said, adding that China would ultimately need to demonstrate to the US that it is willing to make some concessions. 

"But as with Trump, we all know he's quite fickle, to say the least. This trade war took more than a year to get to even talking about 'phase one' deal, who knows, maybe it's going to take another six months to 12 months to get to 'phase two'," she said of the US president.

Even if the US-China trade war were resolved, Ms Ling said the next question is whether the economic slowdown is cyclical in nature or structural, as proponents of the former would be more bullish about growth in 2020.

"My sense is that some of the slowdown is a little bit structural in nature because you basically have ageing demographics, you have productivity growth that has been slowing across most of the major economies," she said, explaining the slower growth compared to the period before the global financial crisis in 2008.

As such, a V-shape recovery should not be expected, she added.

On the bright side, Ms Ling said Singapore's better-than-expected third-quarter economic performance has pushed the bank's Q4 and full-year growth forecast to 0.7 per cent and 0.6 per cent year-on-year respectively.

She added that she expects 2020 GDP growth forecast to be between 1 and 2 per cent year-on-year, with a mid point of 1.5 per cent year-on-year. NODX may also print a slightly more positive 2 to 4 per cent year-on-year, if there is no further escalation of US-China trade tensions.

However, the labour market is expected to continue softening into 2020, even though Singapore's overall unemployment rate of 2.3 per cent, the Republic's highest in 10 years, is still relatively low by international standards.

"I think the pain point will come if you actually see an uptick in terms of retrenchments, for instance. You'll basically have the combination of both the cyclical side, which is that we have a sharp slowdown this year, but you also have the structural side which is your digital disruption and industry restructuring that's been going on for the last few years," Ms Ling said.

Those that will bear the biggest brunt of the latter, she said, will be professionals, managers, engineers and technicians, particularly since Singapore is relatively technologically advanced. This means that the Republic's push for artificial intelligence and automation, among other technologies, could potentially result in "a fair bit of displacement" within the workforce.