Singapore GDP grew 0.4% in Q1; full-year growth expected at mid-point of 0.5 to 2.5% range

SINGAPORE’S external demand outlook for the rest of the year has weakened, with “growth likely to come in at around the mid-point” of the official forecast range of 0.5 to 2.5 per cent year on year, the Ministry of Trade and Industry (MTI) said on Thursday (May 25).

This comes even as gross domestic product (GDP) growth in the first quarter, at 0.4 per cent year on year, turned out to be a notch higher than advance estimates of 0.1 per cent, MTI’s data showed.

It also surprised private-sector economists, who had pencilled a 0.2 per cent year-on-year growth in Q1, a Bloomberg poll indicated.

Still, GDP growth remained lower than the 2.1 per cent year-on-year expansion in Q4.

Asked during a media briefing if the official outlook takes into account the weaker outlook, MTI permanent secretary Gabriel Lim said: “We’ve taken that into account in our updated projections, which is why this time around, we’ve given additional guidance that full-year growth is likely to come in at the mid-point of the range.”

On a seasonally adjusted quarterly basis, the economy contracted 0.4 per cent, reversing from the 0.1 per cent growth in Q4. This was better than the 0.7 per cent contraction in the advance estimate.

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Despite earlier fears of a technical recession among private-sector economists, MTI chief economist Yong Yik Wei told reporters that the ministry is not expecting one this year. A technical recession occurs when there are two consecutive quarters of contraction.

While quarter-on-quarter growth is expected to be “fairly flattish” in the first half of the year, it should pick up gradually in H2, Yong said.

“Given the downside risks and the weakening outlook, we cannot rule out the possibility that there could be some negative quarter-on-quarter growth this year, but that’s not our baseline,” she said.

She added that a technical recession, if any, would be led by the manufacturing sector, while the consumer-facing sectors and aviation continue to be resilient.

The goods-producing industries as a whole shrank 4 per cent year on year. In particular, manufacturing continued its downward slide with a 5.6 per cent contraction, deepening from Q4’s 2.6 per cent decline.

The construction sector grew more slowly, at 7.2 per cent year on year, compared with 10 per cent in the preceding quarter.

Growth in the overall services industries moderated to 2 per cent year on year in Q1 from 4 per cent in the previous quarter.

Wholesale trade was the worst performing services sector, swinging into contraction at -2.5 per cent year on year, from an earlier growth of 2.4 per cent. Accommodation was the best performer, growing 21.9 per cent year on year, up from Q4’s 7.8 per cent.

MTI noted that since the last quarterly update in February, the performance of advanced economies such as the United States and the eurozone has been more resilient than expected, supported by domestic services demand – but their outlook for the rest of the year remains weak.

In the US, growth is expected to “decelerate more significantly in the second half of the year as personal consumption and investment growth slows due to the lagged effects of monetary policy tightening, including on the labour market”.

Likewise, growth in the eurozone is likely to “slow significantly as elevated inflation amidst tight labour market conditions is likely to lead to further monetary policy tightening, which will weigh on domestic demand”. 

China’s economic recovery is likely to be stronger than earlier expected, but the continued stresses in its property market, as well as weakness in its industrial sector amid subdued external demand conditions, will continue to weigh on its recovery, MTI said. Spillovers from China’s services-led recovery are expected to remain weak, since it is less import-intensive, it added.

“Against this backdrop, MTI’s assessment is that Singapore’s external demand outlook for the rest of the year has weakened,” the ministry said. “Apart from the expected slowdown in the advanced economies, the electronics downcycle is likely to be deeper and more prolonged than earlier projected.”

Domestically, the growth outlook for Singapore’s aviation and tourism-related sectors remains positive, but the outlook for manufacturing and other trade-related sectors has weakened, it added.

MTI also flagged several downside risks, such as an escalation of the Ukraine war and other geopolitical tensions and the increased risk of “sharper-than-expected tightening” as a result of recent banking troubles overseas.

OCBC chief economist Selena Ling said the normalisation in the global financial industry following the collapse of Silicon Valley Bank suggests that there is “limited contagion or fallout across the globe”.

She also noted that the services sector should pick up speed from Q2, given the strong rebound in international visitors in March and April, whereas manufacturing could make a “modest” recovery in H2. Her full-year outlook remains at 1.5 per cent.

Likewise, DBS economist Chua Han Teng is not expecting a technical recession and is instead predicting full-year growth at 2.2 per cent.

However, Maybank economists Chua Hak Bin and Lee Ju Ye are less optimistic than MTI, as they see the economy “stagnating rather than rebounding in the coming quarters”.

“Weaker performance in external-oriented sectors will likely offset the resilience in construction and tourism-related sectors such as accommodation, air transport, and food services,” they said. They also noted that Enterprise Singapore cut its full-year export forecast significantly.

“Based on our estimates, Q2 GDP growth would have to come in at 0.5 per cent on a year-on-year basis or above to avoid a technical recession,” said the Maybank team.

Meanwhile, Patrick Tay, assistant secretary-general of the National Trades Union Congress, said there is a need to “pay close watch to labour market figures as well”.

“The cyclical effects from the various global challenges and headwinds will soften the labour market despite our tight labour market,” he said. “The first half layoff numbers are not looking good, and concerns are that it may permeate into the second half of the year.”