MTI narrows Singapore’s full-year growth forecast; Q2 growth revised down to 4.4%

SINGAPORE’S official full-year growth forecast has been narrowed to between 3 per cent and 4 per cent, with second quarter growth revised downwards to 4.4 per cent year on year, slower than the earlier advance estimate of 4.8 per cent, according to data from the Ministry of Trade and Industry (MTI) on Thursday (Aug 11) morning.

But the updated Q2 growth figure was still an improvement on the 3.8 per cent growth recorded in the previous quarter.

On a seasonally-adjusted, quarterly basis, Q2 GDP was down 0.2 per cent on the quarter before, a reversal from Q1’s growth of 0.8 per cent. This was partly due to downward revisions in the figures for the manufacturing sector, in particular the electronics and chemicals clusters, the latter of which “came down a bit weaker than expected”, MTI chief economist Yong Yik Wei told reporters at a morning briefing.

The quarterly contraction opens up the possibility of a technical recession, defined as 2 consecutive quarters of quarter-on-quarter contraction. But Yong told reporters that growth is expected to return to a “slight positive” in the third and fourth quarters: “In other words, we do not expect a technical recession.”

Still, given the weakened global economic environment, it should not be surprising to “see some negatives” for quarter-on-quarter growth from time to time, she added.

The MTI had previously projected full-year gross domestic product (GDP) growth of between 3 per cent and 5 per cent, but with growth likely coming within the lower half of that range.

The narrowed forecast takes into account Singapore’s economic performance in the first half of 2022, when growth averaged 4.1 per cent year on year, as well as the latest global and domestic economic developments, said MTI.

“Since the last media briefing in May, unfortunately the global economic environment has deteriorated further,” said Permanent Secretary for Trade and Industry Gabriel Lim at the briefing. “At the same time, downside risks in the global economy remain significant.”

Such risks include further escalations in the Russia-Ukraine conflict; further supply chain disruptions if geopolitical tensions in the region escalate; potential deteriorations in the Covid-19 pandemic; and potential financial stability risks if there are disorderly market adjustments to monetary tightening in advanced economies.

Domestically, however, Singapore has moved to living with Covid-19 and removed almost all pandemic curbs, supporting the recovery of economic segments that had been hard-hit by the pandemic.

As such, the ministry expects a softer outlook for some outward-oriented sectors, including chemicals, wholesale trade, water transport, and finance and insurance, given China’s weak economic outlook as well as a projected slowdown in major external economies.

On the other hand, the aviation- and tourism-related sectors are expected to continue to see improvement due to the strong recovery in air passengers and international visitor arrivals. The easing of travel restrictions has also bolstered the recovery of the professional services sector as firms can now better engage overseas clients, said MTI.

Even as MTI narrowed its official forecast, most private-sector economists maintained their growth projections for the full year.

Barclays economists Brian Tan and Shreya Sodhani continued to project a full-year GDP forecast of 4.3 per cent, though they now expect downside risks given that the figure is now above the authorities’ new forecast range.

On the other end of the spectrum, Maybank economists Chua Hak Bin and Lee Ju Ye similarly maintained their more pessimistic full-year growth forecast of 2.8 per cent. “Our GDP forecast factors in significant growth slowdown to 1.3 per cent in the second half — versus 4.1 per cent in H1 2022.”

“The boost from the reopening tailwinds will dissipate, while global headwinds including rising United States and global interest rates, China’s slowdown, and a probable Europe recession will dampen exports and trade-related services,” they added.

RHB senior economist Barnabas Gan and OCBC chief economist Selena Ling, too, held on to their full-year projections, which were both in line with MTI’s forecast range. Gan expects growth to come in at 3.2 per cent, while Ling continued to project full-year GDP growth of between 3.5 and 4 per cent. (see amendment note)

In the second quarter, manufacturing grew by 5.7 per cent year on year, extending the 5.5 per cent growth seen in the previous quarter, as expansions in transport engineering, general manufacturing, electronics and precision engineering offset declines in chemicals and biomedical output.

Construction growth picked up to 3.3 per cent, compared to 2.4 per cent previously, on the back of expansion in both public and private sector construction output.

The overall services sector expanded by 4.8 per cent, against 4.7 per cent in the quarter before. Food and beverage services saw the biggest increase in the second quarter, growing 28 per cent year on year upon a low year-ago base due to pandemic curbs then.

The accommodation services segment was the only industry which remained in the red, extending previous quarters’ contractions to shrink 5.3 per cent.

The main drivers of growth in the second quarter were manufacturing, contributing 1.2 percentage points, and the other services industries, adding 0.6 percentage point. The other services industries include education, health and social services, as well as arts, entertainment and recreation.

Headline inflation was 5.9 per cent year on year in Q2, accelerating from 4.6 per cent in Q1. On a quarter-on-quarter, seasonally-adjusted basis, headline inflation came in at 2.1 per cent, faster than the 1.6 per cent recorded a quarter ago.

Separately, trade agency Enterprise Singapore significantly bumped up its full-year trade forecast for the second time this year as second-quarter performance, driven by oil and electronics trade, turned out to be better than expected.

Total merchandise trade is now projected to grow 15-16 per cent in 2022, instead of 8-10 per cent, while non-oil domestic exports are now projected to grow to 5-6 per cent, from 3-5 per cent.

Amendment note: The article earlier incorrectly stated that Barnabas Gan is an economist at RHB. He is a senior economist.