Singapore’s Q1 growth disappoints, but economists more optimistic about full-year figures

SINGAPORE’S growth in the first quarter of 2024 missed consensus expectations, but economists are upbeat about full-year prospects, with some revising their predictions upwards after latest figures on Friday (Apr 12).

Gross domestic product growth stood at 2.7 per cent year on year in the first quarter, improving from 2.2 per cent in the previous quarter, advance estimates from the Ministry of Trade and Industry (MTI) showed.

But on a seasonally adjusted quarterly basis, growth was a marginal 0.1 per cent, slower than the previous quarter’s 1.2 per cent rate.

Both year-on-year and quarter-on-quarter expansion were also below economists’ expectations of 3 per cent and 0.5 per cent growth, respectively, in a Bloomberg poll.

The better year-on-year performance benefited from “favourable base effects”, said DBS economist Chua Han Teng and senior FX strategist Philip Wee.

Nonetheless, they said: “We continue to expect better growth prospects in 2024 versus a muted 2023. The growth recovery will be mainly supported by a gradual improvement in external-led sectors.”

They maintained their full-year growth forecast of 2.2 per cent, adding that this factors in “ongoing uncertainties”, such as the “timing and magnitude of potential (US Federal Reserve) interest-rate cuts, bumpy China economic conditions, and lingering geopolitical tensions that could still disrupt global supply chains”.

UOB economists Alvin Liew and Jester Koh also maintained their full-year forecast, but at a higher rate of 2.9 per cent, near the top of MTI’s official forecast range of 1 to 3 per cent.

Other economists, however, raised their full-year forecasts after Friday’s data.

Maybank analysts Chua Hak Bin and Brian Lee raised theirs to 2.4 per cent, from 2.2 per cent previously. “The outlook is predicated on a recovery in manufacturing and trade-related sectors, as exports rebound from their deep slump in 2023,” they said.

OCBC chief economist Selena Ling also raised her forecast, to 2.3 per cent from “around 2 per cent” previously, as Singapore’s growth trajectory is “tipped to strengthen” in subsequent quarters.

This is “predicated on an improvement in the manufacturing recovery theme, especially for electronics”, she added.

She also expects stronger financial sector performance, as “risk appetite should be buoyed by the global monetary policy easing cycle” in the second half of 2024.

Slowdown in manufacturing

Growth was uneven across sectors in Q1. Manufacturing growth slowed to 0.8 per cent year on year, down from the 1.4 per cent expansion in the previous quarter.

Increased output in the chemicals, precision engineering and transport engineering clusters “more than offset” decreases in the electronics, biomedical manufacturing and general manufacturing clusters, MTI said.

Sequentially, the manufacturing sector contracted by 2.9 per cent, reversing from the previous quarter’s 4.5 per cent growth.

Ling noted: “While there were hopes of green shoots emerging in the global electronics industry, this did not really manifest in the domestic electronics cluster.”

The DBS economists said the electronics cluster’s performance “will be key” to Singapore’s manufacturing recovery this year, adding: “We see signs of improving electronics demand from March 2024’s faster increment in new orders, new export orders, and backlog orders, but the production improvement is not yet firm.”

Construction grew 4.3 per cent year on year, slowing but extending the 5.2 per cent growth in the quarter prior.

Growth in Q1 was supported by an increase in public-sector construction output, even as private-sector construction output declined, MTI said.

Sequentially, the sector contracted by 1.7 per cent, pulling back from the 2 per cent expansion in the preceding quarter.

Growth in services

In contrast, overall services growth improved to 3.2 per cent, from 2 per cent the quarter before. On a seasonally adjusted quarterly basis, services grew 1.2 per cent, improving from the previous quarter’s 0.3 per cent rate.

“Services are buoyant because of visa waivers for China tourists, stronger trade-related services and a ‘Taylor Swift boost’,” said the Maybank economists.

Noting that the services sectors outperformed the goods-producing industries in sequential terms, OCBC’s Ling said that services were “largely boosted” by a rebound in accommodation and food services, real estate, administrative and support services, and other services.

Growth in this group of sectors was 2.9 per cent year on year, up from 2 per cent the previous quarter, and 2.2 per cent sequentially, turning around from the 0.7 per cent contraction in Q4.

MTI noted that the accommodation sector, in particular, “saw robust growth due to a strong recovery in international visitor arrivals”.

The “slew of concerts” in Q1 also provided a “temporal boost” to consumer-facing sectors, Ling added, citing the multi-night Coldplay and Taylor Swift concerts.

But the Maybank economists warned that “momentum may lose some steam for the rest of the year with the near-complete normalisation in tourist arrivals (to pre-pandemic levels) and fading of the ‘Taylor Swift boost’”.

Within services, the wholesale and retail trade sector, along with the transportation and storage sector, collectively grew by 2.7 per cent on the year, faster than the 1 per cent growth in Q4.

Sequentially, the sectors expanded by 1.4 per cent in Q1, improving from the 0.7 per cent contraction in the previous quarter.

The group of services sectors comprising information and communications, finance and insurance, and professional services expanded by 4.2 per cent year on year, quickening from the 3.6 per cent growth in Q4. But sequentially, this group shrank by 4.2 per cent, reversing from the 4.4 per cent growth in the preceding quarter.