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Analysts mixed on GDP forecast for 2022 and 2023 after 3Q2022 advance estimates

Felicia Tan
Felicia Tan • 8 min read
Analysts mixed on GDP forecast for 2022 and 2023 after 3Q2022 advance estimates
Singapore's advance 3Q2022 GDP stood at 4.4%, higher than consensus estimates. Photo: Bloomberg
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Analysts are mixed on their GDP forecasts for 2022 and 2023 after the Ministry of Trade and Industry (MTI) revealed that Singapore’s GDP for the 3Q2022 stood at +4.4%, according to flash estimates.

The growth during the third quarter meant that the country had avoided a technical recession, which refers to seeing two straight quarters of negative GDP growth.

While the advance GDP growth stood higher than Bloomberg’s poll of 3.5%, DBS Group Research’s senior economist Irvin Seah sees Singapore’s growth momentum potentially easing in the coming quarters.

The slower projected growth is due to the slowdown in the manufacturing sector, where headline growth is estimated to have moderated to 1.5% y-o-y, down from 5.7% previously, Seah notes.

Sequentially, the sector is projected to ease by 3.3% q-o-q on a seasonally adjusted basis, he adds.

“We have been highlighting the risk of manufacturing growth easing since early in the year. Real non-oil domestic exports (NODX) has been falling since February 2022, with weakening in demand from China being a key drag. China is behind the curve in terms of the pivot to being Covid endemic,” he writes.

See also: Singapore economy expected to grow by 2.7% y-o-y in 2Q2024

“Its ‘zero-Covid’ policy has been weighing down on domestic demand and regional supply chains, thereby exerting downward pressure on Singapore’s manufacturing performance,” he continues.

Amid weakening global demand, Seah continues to expand the manufacturing sector to see a softer performance in the coming quarter, where the sector will become a drag – instead of a driver – on economic growth.

In his report dated Oct 14, Seah is keeping his estimates for 2022 unchanged pending the final release in November, although any adjustment will be marginal, he says.

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That said, with external headwinds such as high inflation, tighter monetary conditions and geopolitical tensions picking up, these factors will “exert even greater pressure on global economic growth momentum in the coming quarter”.

“DBS has recently lowered our 2023 growth forecasts for the US and China down to 0.3% and 4.0%, respectively. Likewise, we are revising our 2023 GDP growth forecast for Singapore to 2.2%, down from 3.0% previously,” he says.

UOB’s head of research, Suan Teck Kin, notes that Singapore’s advance 3Q2022 GDP release of 4.4% came within his call of 4.2%. The slowdown of the manufacturing sector to 1.5% was expected as well, he says.

“Of note is that wholesale & retail trade and transportation & storage sectors rose 6.2% y-o-y compared to 2.9% in 2Q2022, especially in the retail segment which benefitted from low base effects as well as relaxation of domestic and travel restrictions, with the success of the F1 Grand Prix event a reflection of the pent-up demand,” Suan points out.

He adds that the services sector contributed the lion’s share of headline growth in the last three quarters, accounting for 87% of the 4.4% growth in the 3Q2022.

“With the external environment under significant challenges due to the Russia-Ukraine conflict, ongoing policy tightening by major central banks and risks of recession in advanced economies, domestic services sector will play an increasingly important role in the quarters ahead,” he writes.

On this, Suan has kept his GDP growth outlook for 2022 unchanged at 3.5%, with Singapore’s GDP for the 3Q2022 coming in within his expectations.

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Singapore’s GDP will, however, ease to 0.7% in 2023, he says. The dip in 2023’s estimates reflects the “broad moderation in external outlook as the above factors exert their pressures,” says Suan.

“In addition, base effects are expected to work against the incoming data as we expect headline GDP and their components in 4Q2022 and beyond to face downward pressures.

OCBC Bank’s chief economist and head of treasury research and strategy, Selena Ling, sees that the going will get harder for 2023.

“The growth prognosis is for below-trend growth in 2023, which will put the current mildly positive output gap in reverse. Notably, the mention of the drag on economic activity from the globally synchronised tightening in monetary policy will intensify, and growth in our major trading partners will slow to below trend but stay positive, suggests that prospects for Singapore’s manufacturing and some trade-related sectors have dimmed,” she writes.

That said, the mitigating factors are continued resiliency in domestic-oriented and travel-related sectors, underpinned by strong household balance sheets. The tight domestic labour market, which should see sustained wage growth, is another mitigating factor, Ling notes.

“Given the ongoing geopolitical tensions (whether in Russia-Ukraine or the US-China front, especially for the US chip export ban) and continued hawkish central banks tightening in the face of slowing growth momentum, the risks remain firmly tilted to the downside for 2023 growth for both the global and Singapore economy,” she says.

RHB Group Research’s senior economist Barnabas Gan is maintaining his view that Singapore’s growth momentum will slow in the 4Q2022.

Due to the better-than-expected 3Q2022 flash estimate, however, Gan has upgraded his 2022 GDP forecast to 3.7% y-o-y, up from his initial outlook of 3.2% y-o-y.

“The revised full-year GDP outlook at 3.7% in 2022 is also in line with our proprietary composite leading index model (RHB-CLI SG), albeit highlighting that growth will slow to trend in 2H2022,” he writes. “Note our decision to upgrade GDP growth in 2022 is consistent with our view for the balance risks to be tilted to the upside, cited in our previous reports.”

For 2023, Gan has also retained his estimates at 3.0% y-o-y. This suggests that momentum may continue to decelerate into next year, he says.

“Singapore’s output gap has remained positive year-to-date (ytd), but the pace of growth may slow to below trend in 2023, thus likely tipping the output gap to negative in 1H2023,” Gan writes.

“The drivers behind the growth slowdown are centred on the persistently high global inflation, coupled with a deceleration of global economic activity in 3Q2022. Moreover, tighter financial conditions, especially in developed economies, would likely dampen private consumption and investment,” he adds.

Referring to RHB’s thematic report, US Growth is Made in Asia, Gan notes that Asia-ex Japan is the “factory of the world”. The way he sees it, this highlights the fact that declining consumption activities in developed economies should eventually translate to a slowdown in Asia economic activities.

“In a nutshell, there remain to be plenty of uncertainties surrounding Singapore’s growth prognosis in 2023, given the current global economic slowdown and persistently high inflation,” he says.

Maybank Securities’ economists Chua Hak Bin and Lee Ju Ye see that the real estate sector may be affected in the 4Q2022 due to a fall in property transactions on the back of the newly-unveiled property cooling measures.

In their report dated Oct 14, the economists have kept their growth forecast of 2.8% for 2022 for now. They have also kept their growth forecast at 1.5% in 2023 for the time being.

In 2023, Chua and Lee believe that global growth is likely to slow “significantly” as major trading partners tighten monetary policy aggressively, dampening consumer and investment spending.

“Recession risks in the US have risen significantly while the European Union (EU) is likely to slide into recession on supply shocks from the Russia-Ukraine war,” they write.

CGS-CIMB Research’s economist Nazmi Idrus says the growth outlook for 2023 is “dim” as he sees slowing momentum for growth ahead.

“The possible effects of the GST increase starting January 2023 would likely keep private consumption growth muted. Moreover, the global economic outlook is bleak, with the recent International Monetary Fund (IMF) forecast highlighting a slowdown in growth in the US and China, with recession in some European countries, including Germany and Italy,” he writes.

“Even the Monetary Authority of Singapore (MAS) has stated that the economy is likely to ‘grow at a pace that is below trend’ in 2023. Overall, we maintain our real GDP forecast at 3.8% y-o-y for 2022, with a moderation in growth for 2023 at 2.0%,” he adds.

Jamus Lim, associate professor of economics at ESSEC Business School, Asia-Pacific (APAC), called the advanced figures “heartening” given the weak macroeconomic conditions.

“Diving deeper into the components, though, reveals that manufacturing retreated (while still posting a positive number), consistent with the global slowdown in the sector. Thankfully, services—especially in tourism-related sectors—along with construction, has grown in strength,” he writes. “While the rebound in the latter can be expected to taper off (since it reflects, in part, suppressed activity from the prior year), construction may well remain as a driver of domestic growth, especially given the backlog that had built up over the past few years.”

To Lim, Singapore will also not be immune to the global slowdown due to the “aggressive central bank hiking cycle”.

“Indeed, the upshot of continued strong growth is a tight labour market and, in turn, the risk of entrenched wage inflation. While a correction in wages to reflect higher prices (and restore real incomes) is certainly welcome, continued wage hikes due to expectations of higher inflation could spark a wage-price spiral. To be clear, this doesn’t look to be the case at the moment, but it is a tail risk,” says Lim

“Ultimately, our monetary authorities may have to content themselves with how their tightening monetary policy (via a Singapore dollar or SGD appreciation) could translate into higher unemployment and induce softer growth, in the medium run. Such a tradeoff may well be inevitable, and appears to be an outcome that the Fed has come around to as well,” he adds.

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