Economists mixed on Singapore’s full-year growth outlook despite Q3’s upside surprise

PRIVATE-SECTOR economists were mixed on Singapore’s full-year growth outlook for 2023, even after the country’s third-quarter gross domestic product (GDP) turned out to be stronger-than-expected.

Singapore’s economy grew a surprising 0.7 per cent year on year in Q3 2023, advance estimates from the Ministry of Trade and Industry (MTI) showed on Friday (Oct 13).

This was an improvement from Q2’s 0.5 per cent growth, and better than the 0.4 per cent expansion private-sector economists polled by Bloomberg were expecting.

On a seasonally adjusted quarterly basis, the economy expanded by 1 per cent, accelerating from the previous quarter’s 0.1 per cent growth. Private-sector economists polled by Bloomberg were expecting a sequential growth of 0.6 per cent.

Giving its outlook for 2023, the Monetary Authority of Singapore (MAS) said on Friday that it expects full-year growth to come in at the “lower half” of the official forecast range, which is between 0.5 per cent and 1.5 per cent.

The central bank expects growth in Singapore’s major trading partners to gradually pick up in 2024, “as inflation continues to ease and the electronics cycle turns up modestly, although the timing and extent of the recovery is subject to significant uncertainty”.

While prospects for the economy remain muted in the near term, it should gradually improve in the second half of 2024, said the MAS.

Growth in 2024 is projected to “come in closer to its potential rate, with the output gap remaining slightly negative”.

HSBC analysts Yun Liu and Joey Chew noted that the MAS’ outlook statement was more upbeat than in April, when it had flagged repeatedly the downside risks to growth. “We believe the relative optimism is largely driven by (the MAS’) expectation of a modest recovery in the global upturn,” they added.

The better-than-expected Q3 print prompted at least one research house to raise its full-year growth projections for 2023. UOB now expects 0.6 per cent growth, from 0.4 per cent. This puts the bank’s forecast in line with MAS’ assessment that 2023 growth is likely to come at the lower half of the official range, said analysts Jester Koh and Peter Chia.

Barclays analysts Brian Tan and Audrey Ong maintained their forecast of 0.5 per cent, but noted that the risks to their forecasts are “tilted slightly to the upside”.

In contrast, DBS economists Chua Han Teng and Philip Wee lowered their forecast to 0.9 per cent, from 1.2 per cent previously. They also brought down their 2024 growth forecast to 2.2 per cent, from 2.8 per cent.

“Our projections consider that Singapore’s economic outlook remains fraught with downside external risks, amid a still-uncertain global economic climate, as well as the latest GDP results,” said the economists. “This lingering uncertainty would likely dampen the recovery pace of external-facing sectors in 2024 versus our previous expectations.”

RHB acting group chief economist Barnabas Gan maintained his 2023 growth projection of 1.5 per cent, but noted that the “balance of risks is tilted to the downside”.

Others, such as Maybank economists Chua Hak Bin and Brian Lee, maintained their current growth forecast for 2023 of 0.8 per cent, but noted that a “modest growth recovery is underway” for Singapore, with some green shoots sprouting in the electronics cycle.

OCBC chief economist Selena Ling also maintained her 2023 forecast of “close to 1 per cent”, with the assumption that fourth-quarter growth will come in at around 2.2 per cent year on year. For 2024, she expects the economy to expand by 2 per cent on the year.

In Q3, the goods-producing industries as a whole shrank 3.5 per cent year on year.

Manufacturing continued its downward trend, though it recorded a milder contraction in Q3. The sector tumbled 5 per cent in Q3, from the preceding quarter’s 7.7 per cent contraction.

Output declined year on year for all manufacturing clusters, except transport engineering. Sequentially, the manufacturing sector expanded by 0.2 per cent, an improvement from the previous quarter’s 1.5 per cent contraction.

The construction sector grew 6 per cent on the year, easing from the 7.7 per cent expansion in the second quarter. The growth was supported by expansions in both public and private sector construction output, said MTI.

On a quarterly basis, the sector grew 0.6 per cent, moderating from the previous quarter’s 2.7 per cent growth.

Growth in the services industries moderated in Q3 to 1.9 per cent, easing from Q2’s 2.8 per cent growth.

The wholesale and retail trade sector and the transport and storage sector collectively expanded 0.6 per cent year on year in Q3, moderating from a 2.2 per cent growth in Q2. On a quarterly basis, the group shrank 0.1 per cent, reversing from a 3 per cent expansion the previous quarter.

The group of services sectors comprising information and communications, finance and insurance, and professional services expanded 1.5 per cent on the year, extending the preceding quarter’s 1.2 per cent increase. Sequentially, the group grew 0.7 per cent, easing from Q2’s 1.1 per cent growth.

The remaining group of services sectors – accommodation and food services, real estate, administrative and support services and other services – expanded 4.7 per cent year on year, down from the previous quarter’s 6.1 per cent rise.

All sectors within this group expanded, with the accommodation sector in particular registering “robust growth” on the back of recovery in international visitor arrivals.

On a quarterly basis, growth was 1.4 per cent, an acceleration from 0.4 per cent in the previous quarter.