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ICAEW economic report: Singapore’s trade-weighted economy will likely remain subdued

Douglas Toh
Douglas Toh • 4 min read
ICAEW economic report: Singapore’s trade-weighted economy will likely remain subdued
SGX's Geoff Howie sees industrial policy-led economics as the new angle for world giants like China and the US. Photo: Samuel Issac Chua/ The Edge Singapore
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The electronics sector continues to lead Southeast Asia’s (SEA) exports, extending its lead among other economic sectors in the first quarter. The recovery in global semiconductor sales, which saw a 15.3% y-o-y increase in the quarter, particularly benefited Vietnam, pushing its export numbers to grow by an estimated 16.8% y-o-y, according to Oxford Economics, courtesy of the Institute of Chartered Accountants in England and Wales (ICAEW).

Malaysia also looks to be a beneficiary of the electronics recovery come the second half of the year due its position further down the electronics value chain. 

Despite the region’s healthy showing for its electronics sector, it remains softer compared to Asian semiconductor heavyweights Taiwan and South Korea. While Singapore is a leader in the space, it too, lags behind major manufacturers in Northeast Asia.

“I think the electronics and semicon companies we've got listed here(Singapore) haven't been moving upstream to take on the fabrication and design, they're more about improving capacity and increasing capacity,” says Geoff Howie, market strategist at Singapore Exchange S68 -

(SGX), at the report’s launch on June 19.

Although exports from the SEA region have improved from the last quarter of 2023, in US dollar terms, Indonesia, Malaysia and Philippine exports have actually shrunk in the first quarter of this year. The report attributes this to tight monetary policies around the world, which have had an adverse impact on external demand for the region’s exports. 

Taking into account the below pre-pandemic 2024 global growth forecast of 2.6%, recovery in goods exports for SEA looks modest.

See also: Retail investors pull record GBP1.8 bil from UK equity funds

Meanwhile, domestic consumption in the first quarter demonstrated some resilience, with small improvements observed in retail sales growth in economies like Singapore. Conversely, recovery in neighbouring Malaysia and Vietnam was relatively weaker, especially compared to pre-pandemic levels. 

With interest rates remaining higher-for-longer, the impact of tight monetary policy in local economies looks to keep private consumption constrained, as debt servicing and new borrowing costs remain high.

“Because 90% of all global payments are still conducted in US dollars, having the higher-for-longer in the US is creating a disproportionate impact on smaller economies that are in less favourable positions, especially smaller economies that don’t have great debt dynamics suffer from these negative impacts,” says Howie.

See also: UK economy expands by 0.4% in May, double the expected pace

As a result, central banks in the SEA region will likely be unable to reduce rates swiftly, in order to avoid exacerbating pressure on local currencies. The report cites Bank Indonesia as an example, who was forced to increase rates in the first quarter of 2024 due to Indonesia’s weak currency. 

ICAEW notes that there could be a silver lining however; it expects the US Federal Reserve (US Fed) to cut rates in the third quarter, which should lead to currency pressures abating and a subsequent easing across the SEA region.

In Singapore, the gross domestic product (GDP) grew by 2.7% y-o-y in the first quarter, while the seasonally-adjusted GDP saw only a slight increase of 0.1% q-o-q, primarily due to a slump in manufacturing and construction, which contracted by 2.9% and 1.7% q-o-q, respectively. 

Goods export volumes remained stable, primarily due to stronger re-exports, while domestic exports, which have a greater impact on GDP, continued to decline despite a slight uptick in April. 

Howie explains: “We're now entering this world of industrial policy-led economics, where it’s going to take a lot of focus off the central banks, as the world looks to strategically complete and in effect, re-industrialise itself. We’re pulling into these trade fragmentation policies that are creating what I think is the new kind of paradigm for macroeconomics across the world.”

The brighter spot in Singapore’s exports comes from the electronics and non-electronics sectors, which led non-oil domestic exports (NODX) to fall by 9.3% y-o-y in April, an improvement from the 20.8% decline in March. With the global electronics cycle reaching its low point, seasonally adjusted electronics NODX grew by 9.4% m-o-m in April.

Overall however, Oxford Economics forecasts SEA’s economy to grow by 4.0% in 2024 and 2025, compared to the average 5% growth a year in the five years before the pandemic. 

“Everyone has got to get their act together and find ways to create new growth with two mega structural themes, sustainability and digitalisation, embracing that to sustain growth going forward, but due to the trade protectionism, while we might have more output, we're not going to have more efficiency,” says Howie.

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