Singapore’s full-year growth forecast narrows to 0.5-1.5%, Q2 growth revised down
Tessa Oh
SINGAPORE’S official full-year growth forecast for 2023 has been narrowed to a range of 0.5 per cent to 1.5 per cent, down from 0.5 per cent to 2.5 per cent, as the external demand outlook for the rest of the year remains weak, the Ministry of Trade and Industry (MTI) said on Friday (Aug 11).
This comes as gross domestic product growth for the second quarter was revised downwards to 0.5 per cent year on year, a notch lower than the advance estimate of 0.7 per cent – but still higher than Q1’s 0.4 per cent figure.
However, it was lower than the 0.8 per cent year-on-year growth that private-sector economists were expecting, a Bloomberg poll indicated.
On a seasonally adjusted quarterly basis, the economy expanded marginally by 0.1 per cent, less than the 0.3 per cent advance estimate and the 0.4 per cent private-sector economists had forecast. This marginally positive growth, following Q1’s 0.4 per cent contraction, meant that Singapore narrowly escaped a technical recession, defined as two straight quarters of quarterly contraction.
In a media briefing, MTI permanent secretary Gabriel Lim highlighted some aspects of the “overall macro situation” that guided the revised forecast. These included continued softness in China’s economy, as well as weakness in the manufacturing sector, whose downturn is “proving to be a little bit more protracted than we initially thought”, he said.
While there is still a chance that growth may come in at the higher end of the updated forecast range, MTI is unable to give any further qualitative guidance at this juncture, he added.
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MTI chief economist Yong Yik Wei said Singapore should expect positive, though modest, year-on-year growth in the second half of the year.
As for sequential growth, no technical recession is expected in the rest of the year either, she said: “I think we are looking at a very modest recovery profile in the second half of the year... anchored by inbound tourism, the resilience of the consumer-facing sectors, (which will provide) some cushion to growth.
“And hopefully, if the electronics downcycle bottoms out towards the end of the year, that should give a small lift to electronics as well towards the end of the year.”
RHB senior economist Barnabas Gan maintained his view that Singapore’s growth momentum will improve in the second half, but noted that the narrowed forecast tilts the balance of risks to his full-year growth forecast of 2 per cent to the downside.
Barclays economist Brian Tan also expects downside risks to the research house’s full-year forecast of 1 per cent, which is now at the midpoint of the new forecast range by MTI.
In Q2, the goods-producing industries as a whole shrank 5.5 per cent year on year. Manufacturing continued its downward slide, tumbling 7.3 per cent in a deepening of Q1’s 5.4 per cent contraction.
This poor performance more than offset the construction sector’s growth. Construction grew 6.8 per cent year on year, extending the previous quarter’s 6.9 per cent growth. Both public and private sector construction output rose during the quarter.
The services industries grew 2.6 per cent year on year in Q2, improving from 1.9 per cent the previous quarter. Among services, finance and insurance was the worst performing segment, contracting by 1.7 per cent year on year in an extension of Q1’s 1.1 per cent decline.
Since the last update in May, the performance of advanced economies such as the US and the eurozone continued to be resilient, though their growth is expected to weaken in the second half of the year, said MTI.
Likewise, China’s growth is expected to moderate in the second half as the post-pandemic recovery in services slows in tandem with deteriorating consumer confidence.
MTI’s assessment is that Singapore’s external demand outlook for the rest of the year remains weak: “Apart from the expected slowdown in Singapore’s key external demand markets, the global electronics downturn is also likely to be protracted, with a gradual recovery expected towards the end of the year, at the earliest.”
Downside risks in the global economy also remain, including more persistent-than-expected inflation in advanced economies, risk of escalation in the war in Ukraine and geopolitical tensions among major powers.
The outlook for aviation and tourism-related sectors, as well as consumer-facing sectors such as retail trade and food-and-beverage services, remain positive due to the ongoing recovery in air travel and inbound tourism.
But the outlook for outward-facing sectors – such as manufacturing or finance and insurance – continues to be weak for the rest of the year, said the ministry.
Manufacturing is expected to be weighed down by output contractions in electronics and precision engineering, amid the global electronics downturn. Meanwhile, the finance and insurance sector is likely to be subdued as a result of continued weakness in the external economic environment and restrictive financial conditions, added MTI.
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