Economists keep 2024 GDP forecasts after expected narrowing of official forecast to 2-3%

PRIVATE-SECTOR economists maintained their 2024 full-year growth forecast for Singapore, after the Ministry of Trade and Industry (MTI) narrowed its official full-year growth forecast for 2024 to a range of 2 to 3 per cent, from 1 to 3 per cent previously.

The narrowing was previously signalled by the Monetary Authority of Singapore, which said in its Jul 26 policy decision that Singapore’s full-year growth was likely to be closer to its potential rate of 2 to 3 per cent.

Second-quarter gross domestic product came in at 2.9 per cent, based on data from the ministry on Tuesday (Aug 13). On the year, the Q2 GDP print – unchanged from July’s advance estimate – slowed marginally from the previous quarter’s 3 per cent growth.

On a seasonally adjusted quarterly basis, the economy expanded by 0.4 per cent in Q2, also unchanged from early data. Overall, year on year (yoy), Singapore’s GDP growth averaged at 3 per cent for the first half of 2024.

But economists noted a sectoral shift.

Barclays senior regional economist Brian Tan noted market expectations of a downward revision to the Q2 GDP assessment. But economists agreed that the steady growth rate was due to the better-than-expected services performance offsetting downward revisions in manufacturing and construction.

The manufacturing sector shrank by 1 per cent on year, compared with the 0.5 per cent growth indicated in the advance data. A sharp fall in pharmaceuticals output in the biomedical manufacturing cluster caused the weakness.

There was an upward revision to services – from 3.3 per cent yoy growth in early data to 3.7 per cent in the final print.

Private-sector economists kept to their forecasts for the full year. These forecasts were at the upper end of the official forecast range. DBS expects growth of 2.7 per cent; OCBC, 2.6 per cent; UOB, 2.9 per cent; HSBC and Maybank, 3 per cent; and Barclays and RHB, 2.5 per cent.

Speaking to media at a Tuesday morning briefing, MTI chief economist Yong Yik Wei said barring downside risks in the global economy, Singapore’s growth is expected to stay at this trend rate of around 2 to 3 per cent over the medium term, “up to 2033 or thereabouts”. This is in line with Prime Minister Lawrence Wong’s remarks during February’s Budget.

MTI permanent secretary for policy Gabriel Lim added that the agency is also trying to improve labour productivity performance, which will enable it to shift trend growth “a bit outwards”.

“For the rest of the year, Singapore’s external demand outlook remains resilient,” he said. “While GDP growth in the US and China is expected to ease gradually, GDP growth in the eurozone, Japan and key South-east Asian economies should improve.”

But he noted that downside risks remain. Specifically, MTI said that an intensification of geopolitical and trade conflicts could weigh on global trade and growth, and disruptions to the global disinflation process could lead to tighter-for-longer financial conditions.

This assessment “looked more optimistic” than the one drawn from the last economic survey in May, DBS economist Chua Han Teng noted.

OCBC chief economist Selena Ling noted that the May survey cited a third downside risk – that vulnerabilities in emerging markets arising from a desynchronisation of their monetary policy cycles with those of advanced economies could trigger greater volatility in capital flows and currency fluctuations. This observation was omitted in the latest report.

Together with MTI’s indication of a “resilient” outlook, this could suggest that the growth assessment is slightly more sanguine than that for the previous quarter, Ling added.

Electronics-led manufacturing recovery

Singapore’s manufacturing sector is anticipated to recover gradually in the second half.

DBS’ Chua said: “Electronics remains the most optimistic cluster within the manufacturing sector for H2 2024.” Economists agreed that electronics should recover more strongly, supported by robust demand for smartphone, PC and artificial intelligence (AI)-related chips.

Barclays’ Tan said: “The tech upcycle is broadening out of North Asia, where the AI boom has largely been playing out.”

The electronics improvement is also expected to lift the precision engineering cluster.

The pace of Singapore’s electronics output is still lagging behind that of tech-exposed economies such as Korea and Taiwan, which have heavier exposure to AI-powered production; Singapore is set to ride the recovery in global consumer demand, said HSBC Asean economist Yun Liu.

UOB associate economist Jester Koh said: “Tight financial conditions stemming from elevated interest rates in the US and European Union may temper the extent of improvement in externally-oriented sectors in the near term.” This includes manufacturing.

But he added these sectors could stage a more meaningful recovery in Q4, if major central banks lower policy rates, which may stimulate investment and consumption activity abroad.

Uneven in services

Maybank analysts Chua Hak Bin and Brian Lee said: “Trade-related services like wholesale trade and transport will continue to benefit from the recovery in export volumes, while a projected decline in global interest rates should support a sustained rebound in financial activities.”

Meanwhile, consumer-facing sectors such as retail trade and food and beverage (F&B) services are tipped to experience continued weakness, because outbound travel will likely remain robust on the back of the strong Singapore dollar for the rest of the year, said MTI’s Yong.

She added that the recovery in inbound tourism should, however, offer some support.

Sequentially, the large corrections from the previous quarter in retail trade and F&B were largely expected, due to the concentration of large-scale international concerts in Q1, said HSBC’s Liu.

The Maybank duo added that hospitality and other consumer-related sectors could undergo a pickup, as the line-up of top-tier events (the F1 Grand Prix) and big-name concerts (Jay Chou, Dua Lipa, Olivia Rodrigo) bring in more tourists.

But UOB’s Koh highlighted that aside from the strong Singdollar, the pace of growth in tourism-related sectors (accommodation, F&B, retail) is likely to soften on dissipating post-pandemic tailwinds.