SINGAPORE (Aug 13): The Ministry of Trade and Industry (MTI) expects Singapore’s economic pace of expansion to moderate in 2H18 against an external backdrop of a weakening global growth outlook, as well as increased uncertainties and risks in the global economy.

This comes even as MTI maintains its GDP growth forecast for 2018 at 2.5-3.5%, highlighting the “strong performance” of the Singapore economy in the first half of the year.

To recap, Singapore’s economy grew by 3.9% y-o-y in the recent 2Q18, easing from the 4.5% growth in the previous quarter, led by growth in the manufacturing sector.

See: Singapore GDP growth eases to one-year low: MTI prelim data

See: Singapore GDP growth this year seen unchanged at 3.2%: MAS quarterly survey of economists

MTI now expects growth in several of Singapore’s key final demand markets to moderate in 2H18 from the first half of the year – considering how the growth outlook of some key advanced economies has weakened slightly partially due to their weaker-than-expected performance in 1H.

It nonetheless sees Singapore’s economic growth to continue being supported by outward-oriented sectors, particularly the electronics cluster in the manufacturing sector, although its growth will still moderate from the high levels as seen in 1H18.

Other outward-oriented services sectors in Singapore such as finance & insurance, wholesale trade and transportation & storage are also projected to remain on an expansionary path – although their growth momentum is also expected to ease.

Meanwhile, MTI says growth in domestically-oriented services sectors like retail and food services is likely to be supported by improving consumer sentiment amid a pickup in the labour market.

Sectors like information & communications and other services are also projected to remain resilient, although the ministry believes Singapore’s construction sector performance is likely to stay lacklustre for the rest of the year, in view of the earlier weakness in contracts awarded.

Beyond Singapore, the ministry anticipates GDP growth to ease in the US over 2H18, with growth for the rest of the year to be supported by domestic demand, improving labour marketing conditions and largely accommodative financing conditions.

China’s economic growth is also projected to ease further in 2H18 on the back of a moderation in export growth as well as investment growth, although MTI expects growth in key Asean economies to remain firm for the rest of the year on sustained improvements in domestic demand as well as merchandise exports.

MTI also notes that recent tariff measures by the US have also led to retaliatory tariffs from China, the EU and several of the US’ key trading partners, with a risk of further escalation of the ongoing trade conflicts that could lead to a “vicious cycle of tit-for-tat measures” between the US and other major economies.

“Should this happen, there could be a sharp fall in global business and consumer confidence, and in turn, investment and consumption spending. This could then have an adverse impact on global trade flows and global growth,” cautions the ministry.

Another risk lies in the current situation of generally tightening global financial conditions, where any upside surprises in inflation could also lead to faster-than-expected normalisation of monetary policy in the US.

This could trigger “disorderly” capital outflows from emerging market (EM) economies in the region, causing financial vulnerabilities in these economies – particularly for those with high debt levels – to surface, MTI adds.  

“If this occurs, there could be some pullback in investment and consumption growth, with spillover effects on the rest of the region.”

Likewise, DBS senior economist Irvin Seah warns that trade actions between US and China, Singapore’s two largest export markets, could indirectly affect the city state.

While the analyst’s long-held forecast of 3% growth for 2018 GDP growth remains on-track, in his view, he recommends watching trade figures in the coming months for tell-tale signs of the slowdown in growth to come.  

“Clouds in the horizon are gathering… Tighter liquidity conditions and mounting pressure on regional currencies could also weigh down on investor confidence and business sentiments,” says Seah in a note issued on Monday.

“Expectations are for the third quarter’s growth to be the weakest this year, which will also pare down consensus expectations for the full year growth rate,” he adds.