Singapore economy seen improving, but there are still headwinds
SINGAPORE: The outlook for Singapore’s economy seems to have become less gloomy since the turn of the New Year, with first-quarter growth beating estimates and the Government expecting a higher gross domestic product (GDP) figure this year.
But even as brighter prospects beckon after a rollercoaster 2016, challenges remain.
One niggling concern is the uneven recovery in the economy, where renewed strength appears limited to certain trade-related sectors – specifically, the electronics and biomedical manufacturing clusters.
Echoing the Ministry of Trade and Industry's (MTI) view of “a certain unevenness” in the economy, experts told Channel NewsAsia that the outlook for other sectors beyond manufacturing continues to look lacklustre.
For one, the services sector, which makes up two-thirds of the economy, remains stuck in low gear. While it expanded 1.6 per cent year-on-year in the first quarter, the sector contracted by 2.1 per cent on a quarter-on-quarter seasonally adjusted basis, with the drag coming from wholesale retail trade, accommodation and food services and financial services.
“A lot of the weightlifting is coming out of manufacturing, especially the semiconductor industry which has been extraordinarily strong, but once you exclude all of that, it is not a picture of a healthy economy,” said Nomura economist Brian Tan. “The question now is how long this uplift from manufacturing will continue.”
Alluding to the moderation in first-quarter growth, economists agree that the resurgence in the local manufacturing sector will likely take a pause in the coming quarters.
DBS senior economist Irvin Seah said there are increasing signs that the manufacturing rally could be coming to an end. “PMIs (purchasing managers' indexes) in US and China and recent NODX (non-oil domestic exports) have all fallen in the latest April data set, suggesting that the run-up in global consumer demand could be waning.”
Singapore’s exports posted a surprise 0.7 per cent year-on-year drop last month, halting five consecutive months of growth, on the back of a downward swing in pharmaceutical exports.
This could throw up uncertainties for the economy moving ahead.
“We are expecting manufacturing growth to moderate gradually as we get through the rest of the year and if the broader economy does not benefit from the pick-up by then, we could get significantly lower GDP,” said Mr Tan.
The local labour market will likely stay weak, weighed down by a patchy economic recovery and structural challenges.
“If you look at the job cuts in the first quarter, they were concentrated in the manufacturing and construction sectors. This may seem like an irony given the growth in manufacturing, but it’s really by design as the Government looks to reduce labour-intensive jobs and head towards advanced manufacturing and precision engineering,” said Maybank Kim Eng economist Chua Hak Bin.
“Some of the indices suggest that hiring may improve but I suspect that any recovery will be like the economy – slow and uneven.”
UNCERTAINTIES REMAIN IN EXTERNAL OUTLOOK
Meanwhile, Singapore’s trade-reliant economy remains sensitive to uncertainties in the global economy.
On Thursday, MTI said that while it expects global growth this year to be higher than that in 2016, key risks such as rising anti-globalisation sentiments, political risks and economic uncertainties in Europe and the US remain.
In Asia, the possibility of tighter monetary conditions in China, which is a major trading partner for Singapore, may derail growth.
“The fact that an essentially more optimistic outlook statement came with the usual caveat of risk warnings about anti-globalisation (and) protectionist threats, as well as monetary conditions tightening and slower-than-expected growth in China, suggests an improved but still cautious perspective,” OCBC's head of treasury and strategy Selena Ling wrote in a note.
This means that the Monetary Authority of Singapore (MAS) will likely be parsing second-quarter growth indicators for clues before it decides on its next policy move. Last month, the central bank opted to stand pat on its neutral policy stance of zero per cent appreciation of the S$NEER (Singapore dollar nominal effective exchange rate).
“The current recovery pace suggests that they may stay on a neutral bias,” said Dr Chua. “MAS may move to a slight appreciation bias but only if the numbers for the second quarter confirm that recovery continues to strengthen and broaden.