Economists stick to 2024 Singapore growth outlook after Q1 GDP beats forecasts
While growth in the major economies is expected to pick up in the later part of this year alongside anticipated interest rate cuts, downside risks in the global economy remain
PRIVATE-SECTOR economists largely maintained their 2024 full-year growth forecast for Singapore, even after first-quarter gross domestic product (GDP) beat expectations to come in at 2.7 per cent year on year.
The first-quarter GDP print, which was unchanged from April’s advance estimate, was above the 2.5 per cent year-on-year growth that private-sector economists were expecting, indicated a Bloomberg poll. It was also an improvement from the previous quarter’s 2.2 per cent growth.
On a seasonally adjusted quarterly basis, the economy expanded marginally by 0.1 per cent, unchanged from the advance estimate, but slower than the previous quarter’s 1.2 per cent growth. It also beat economists’ median expectation of a 0.3 per cent contraction.
Yet the Ministry of Trade and Industry (MTI) on Thursday (May 25) kept to its full-year growth forecast for 2024 of between 1 and 3 per cent.
Private-sector economists also kept to their forecasts for the full year. DBS expects growth of 2.2 per cent; RHB, 2.5 per cent; UOB, 2.9 per cent; Maybank, 2.4 per cent; and OCBC at “around 2 per cent”.
While growth in the major economies is expected to pick up in the later part of this year alongside anticipated interest rate cuts, downside risks in the global economy remain, said MTI permanent secretary for policy Gabriel Lim in a press briefing on Thursday (May 23) morning.
This includes escalations in geopolitical tensions in the Middle East, disruptions to the global disinflation process, and vulnerabilities in emerging markets arising from a desynchronisation of their monetary policy cycles from that of advanced economies, leading to greater volatility in capital flows and currency fluctuations, said MTI in its release.
Singapore’s manufacturing and trade-related sectors are expected to see a gradual pick-up in growth over the course of the year, while a stronger-than-anticipated recovery in air travel and tourism demand will continue to bolster the growth of aviation and tourism-related, as well as consumer-facing sectors, Lim added.
Fragile manufacturing recovery
RHB acting group chief economist Barnabas Gan noted that Q1’s growth was underpinned by the services industry, which expanded 3.9 per cent year on year – an improvement from the advance estimate of 3.2 per cent, as well as the previous quarter’s 2 per cent growth.
“The upside revision in services growth has outweighed the downward revisions in Singapore’s manufacturing and construction,” he added.
Manufacturing contracted 1.8 per cent, reversing from the previous quarter’s 1.4 per cent growth. This was largely due to an output decline in the electronics cluster caused by the demand for automotive and industrial chips, said MTI’s Lim.
“Singapore’s semiconductor sector is not as leveraged to the ongoing boom in advanced chips for artificial intelligence servers, compared to peers like Taiwan and South Korea,” said Maybank economists Chua Hak Bin and Brian Lee.
Meanwhile, construction grew 4.1 per cent year on year, extending the previous quarter’s 5.2 per cent growth – but this was a notch lower than the 4.3 per cent advance figure in April.
While manufacturing growth has been laggard, the lynchpin electronics cluster should pick up gradually over the coming quarters, said Dr Chua and Lee. “Demand for chips and other electronics exports should be supported by new replacement cycles of consumers and businesses for smartphones and PCs, as well as growing demand for generative AI (artificial intelligence) applications in consumer electronics.”
Externally-led recovery
“Singapore’s economic recovery in 2024 will hinge on the performance of external-oriented services clusters, which have been an increasingly important part of the overall economy,” said DBS economist Chua Han Teng in a research note.
The wholesale trade cluster expanded 1.5 per cent year on year in the first quarter, extending the previous quarter’s 0.2 per cent growth, while the transport and storage cluster grew 6.8 per cent, accelerating from the previous quarter’s 2.8 per cent growth.
Going forward, these services are expected to continue to be supported by Singapore’s modest manufacturing recovery and global trade, said Chua.
Financial services should also improve with an uptick of credit demand, given the anticipated easing in global interest rates – though the pace may be held back by uncertainty on the magnitude and timing of the rate cuts, he added.
The consumer and tourism-related sectors should continue to be supported by the tourism recovery. In Q1, transport and storage expanded 6.8 per cent year on year, while accommodation recorded a double-digit gain of 14.4 per cent year on year.
A “healthy pipeline of noteworthy events”, such as the concerts by American musician Bruno Mars in April and Mandopop star A-mei in July, in the next two quarters could continue to support the services industries, said RHB acting chief economist Barnabas Gan.
But UOB associate economist Jester Koh cautioned that activity in these sectors could moderate as tailwinds from the post-pandemic pent-up demand for these services ease.
“The strong momentum in these sectors in the first quarter may not be sustained for the full-year as the impetus from the popular concert events may be ‘one-off’, while Singapore’s export competitiveness and its competitiveness as a tourism destination could also be weighed down by structurally higher price levels vis-a-vis the regional Asean economies,” he added.
Maybank’s Dr Chua and Lee also noted that domestic consumption continues to be rather restrained, partly due to the strong Singdollar. “Elevated inflation may also be encouraging some households to divert their spending budgets abroad.”
