SINGAPORE (Feb 17): Singapore’s Ministry of Trade and Industry (MTI) as well as private sector economists have cut the city state’s GDP growth forecasts for 2020.

This comes after state agencies on Monday released economic performance and trade figures for 2019.

According to MTI, the Singapore economy grew 1.0% year-on-year in 4Q2019. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded at a slower pace of 0.6% compared to the 2.2% growth in the preceding quarter.

This brings full year growth to just 0.7% – a steep decline from the 3.4% growth recorded in 2018.

In particular, the manufacturing sector contracted by 1.4% in 2019, retreating from a 7.0% growth in 2018. The sector’s performance was weighed down by output declines in the electronics, chemicals, precision engineering and transport engineering clusters.

At the same time, Enterprise Singapore on Monday also announced that Singapore’s total merchandise trade fell 3.2% to $1.0 trillion in 2019, reversing from two consecutive years of growth.

The decline was spearheaded by a 13.9% drop in oil trade during the year amid lower oil prices.

Meanwhile, non-oil domestic exports (NODX) plunged 9.2% in 2019 on the back of lower shipments of both electronic and non-electronic products.

Electronic NODX contracted by 22.5% amid the global electronics downcycle, while non-electronic NODX declined by 4.5% as pharmaceuticals and petrochemicals retreated from multi-year peaks recorded in 2018.

NODX also continued to decline in January 2020, falling 3.3% on the back of a 13.0% drop in electronic exports.

2020 outlooks slashed

MTI has downgraded Singapore’s GDP growth forecast to “-0.5% to 1.5%” for 2020, with growth expected to come in at around 0.5% – the mid-point of the forecast range.

This is down from the GDP growth forecast of “0.5% to 2.5%” for 2020 that it announced in November last year.

“The forecast (in November 2019) was premised on a modest pickup in global growth, along with a recovery in the global electronics cycle, in 2020. Since then, the outbreak of the coronavirus disease 2019 (COVID-19) has affected China, Singapore and many countries around the world,” MTI said in a statement on Monday.

“Should the COVID-19 outbreak be more widespread, severe and protracted than anticipated, there could be a sharper pullback in global consumption, as well as more prolonged disruptions to global supply chains and production,” it warned.

On top of the coronavirus outbreak, MTI says other uncertainties in the global economy remain, including wobbly US-China trade relations and volatile geopolitical tensions in the Middle East.

Meanwhile, officials have also been adjusted 2020 growth projection for total merchandise trade and NODX downwards to “-0.5% to 1.5%”, from the earlier 2020 forecast of “0.0% to 2.0%”.

The previous forecast, released in November last year, had been premised on a modest pickup in global growth, along with a recovery in the global electronics cycle, Enterprise Singapore said.

The way economists see it, the coronavirus outbreak is not unlike a kick in the knees for Singapore, which had been just about showing signs of regaining its footing.

“Notably, exports rebounded in 4Q leading to a positive contribution from net exports to growth for the first time in four quarters,” says Sung Eun Jung, an economist at Oxford Economics. “However, the disruptions caused by COVID-19 have upended signs of recovery in trade.”

“Accordingly, we have downgraded our GDP growth forecast for 2020 by 0.4 percentage point to 1%. However, the situation remains worrisome and downside risks to our forecast remain,” she adds.

Over at UOB Global Economics & Markets Research, economist Barnabas Gan agrees that Singapore’s growth outlook has had been “largely positive” prior to the onset of the outbreak.

From an earlier projection of 1.5% growth in 2020, UOB had downgraded Singapore’s GDP growth to a range of 0.5% to 1.0% following the outbreak. Now, it is cutting its forecasts even further.

“We are trimming our forecast down to 0.5% in 2020 with downside risk, especially if the virus outbreak progresses to be more widespread, severe and protracted than anticipated,” says Gan.

“Delving into Singapore’s growth prospects, the negative impact on China’s economic growth from the COVID-19 outbreak as well as the ongoing travel ban will certainly inject growth headwinds,” he adds.

Meanwhile, Fitch Solutions Macro Research is also cutting Singapore’s economic growth forecast, following a downward revision of China’s real GDP growth forecast by 0.3 percentage point to 5.6%. Fitch Solutions notes that this is based on the close economic links between Singapore and China.

Fitch Solutions is slashing 2020 real GDP forecast for Singapore to 1.0%, from 1.7% previously.

“Singapore’s real GDP growth has been closely correlated with China’s growth for decades and this relationship has held strong for the past 10 years starting from 2010,” the research house says.

According to Fitch Solutions, the gradual economic recovery it had expected for Singapore in 2020 in “under threat” as trade and manufacturing activity continues to be disrupted across Asia.

“These downside risks are exacerbated by the weaker position both China and Singapore are in after more than a year and a half of the US-China trade tensions,” it adds, describing Singapore’s close economic links to China as “a key vulnerability”.

However, the private sector economists are expecting the government to step to relieve some pressure on the economy.

“We expect tomorrow’s budget to significantly ease fiscal policy and the Monetary Authority of Singapore (MAS) to follow with monetary easing in April,” says Oxford’s Sung.

Heng Swee Keat, Singapore’s Deputy Prime Minister and Minister for Finance, is scheduled to deliver the 2020 Budget Statement in Parliament on Feb 18.

“Owing to the uncertain backdrop and weakened growth outlook, we now expect policy-makers to ease policy to neutral, down from a currently perceived +0.5% appreciation slope,” says UOB’s Gan.