SINGAPORE’S growth should improve gradually in the second half of 2024 and be more even across sectors, barring renewed shocks to the global economy, the Monetary Authority of Singapore (MAS) said on Monday (Oct 30).

For 2024 as a whole, Singapore’s growth should “come in closer to its potential rate”, though with the output gap remaining slightly negative, said MAS. Singapore’s trend growth is generally seen as being 2 per cent to 3 per cent.

This is even as global growth is set to ease further in the coming quarters, partly reflecting tight monetary policy. This is dragged down by the G3 – eurozone, Japan and the United States. The G3 economies are expected to grow 1.7 per cent this year, down from 2.3 per cent in 2022 – slowing further to 0.7 per cent growth in 2024.

China’s economy has shown signs of improvement, but its growth prospects continue to be dampened by a struggling property sector and local government fiscal constraints.

MAS expects the global economy to grow 3.1 per cent in 2023, down from 3.4 per cent last year – slowing further to 2.8 per cent growth in 2024.

For Singapore, full-year gross domestic product (GDP) growth for 2023 is still expected to come in at the lower half of the official forecast range of 0.5 per cent to 1.5 per cent.

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For 2024, there is still uncertainty over the “strength and sustainability” of the pick-up in growth, which is contingent on external final demand.

Nevertheless, sectoral growth rates are expected to keep converging towards their pre-Covid trends in the quarters ahead.

This is after the country’s economy has been on a “three-speed trajectory” – weak growth in external-facing industries, above-trend growth in domestic-facing sectors, and strong double-digit growth in travel-related industries with global border reopening.

While the global electronics industry has shown early signs of improvement, the sector continues to face near-term headwinds.

The decline in global chip sales has slowed, but this was narrowly based, led mainly by fabless firms, including designers of chips used in servers for generative artificial intelligence (AI). In contrast, memory and logic chipmakers remain in the doldrums.

Demand for IT products has also been tepid in Singapore’s top two final demand markets: China and the US.

Thus, while there is “sustained structural demand” from expansions in generative AI, electric vehicles, Internet of Things and 5G networks, “the cyclical recovery may take longer than expected, as the strength in final demand remains uncertain”, said MAS.

Singapore’s electronics industry is thus likely to only pick up “more discernibly” in the latter half of 2024, said MAS. Aside from cyclical developments, some domestic players could also be affected by supply chain disruptions from the US-China tech war and structural growth trends.

“US-China bilateral relations appear to be warming up slightly, but the strategic rivalry on the advanced manufacturing front, especially for chips, appears to persist,” said OCBC chief economist Selena Ling.

“At this juncture, there have been limited contagion effects, but it’s difficult to predict going forward,” she added. If the polarisation of the chip ecosystem continues, then Asean economies – including Singapore – could be impacted.

DBS economist Chua Han Teng noted that Singapore’s electronics output showed signs of stabilisation in the third quarter, and is expected to benefit from the modest turnaround in global semiconductor sales and medium-term optimism on AI-related chips. But geopolitical tensions continue to linger, which could still disrupt supply chains, he added.

In contrast, growth in the lacklustre financial services sector seems to have already bottomed out as interest rates plateau, with a possible modest recovery ahead.

Meanwhile, growth momentum in travel-related industries is expected to taper off as demand and supply rebalances.

And growth in the domestic-oriented sectors – such as food and beverage as well as retail – is expected to normalise as post-reopening momentum wanes and consumer sentiment turns cautious.

Maybank regional co-head of macro research Chua Hak Bin expects manufacturing growth to exceed services growth by the second quarter of next year, as global electronics demand recovers and gains momentum, while the revenge spending in services fades.

As for the labour market, further softening is expected over the next few quarters. Still, overall employment growth should stay supported by the domestic-oriented services and travel-related sectors.

Labour demand in external-facing industries could also firm up in the latter part of next year as these industries recover. Therefore, the resident unemployment rate is unlikely to rise significantly.

However, wage growth will slow. Resident nominal average monthly earnings growth is expected to “fall considerably” as nominal GDP growth declines and bonus payments normalise after an atypical jump this year, said MAS.

With Singapore’s labour market already showing signs of easing, a moderation in overall wage growth would not be surprising, said DBS’ Chua.

OCBC’s Ling noted that the last two years were atypical in terms of inflation, and thus wage growth and expectations. With external and domestic growth momentum easing, and disinflation materialising while more foreign workers return, “it is logical not to continue to expect outsized wage growth and bonus payments going out into 2024”.

But unlike MAS, Maybank’s Dr Chua is not expecting nominal wage growth to fall considerably from current rates, given Singapore’s expected growth recovery in 2024, the tight labour market, cost pressures from tightening manpower policies, and the expansion of the Progressive Wage Model.

“We are also expecting the financial sector to recover in 2024 from the contraction this year, which could raise overall wages for a sector with relatively higher compensation,” he said.