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Manufacturing recovery to help lift Singapore’s 2024 GDP but humps aplenty

Felicia Tan
Felicia Tan • 9 min read
Manufacturing recovery to help lift Singapore’s 2024 GDP but humps aplenty
The construction sector helped to prop up 2023 and is projected to grow further this year with a healthy pipeline of projects. Photo: Samuel Isaac Chua/The Edge Singapore
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Singapore’s 4Q2023 GDP grew by 2.8% y-o-y, surpassing the market’s expectations of 1.8%. Economists, including Chua Han Teng of DBS Group Research, are projecting a more favourable 2024 than the preceding year. In 2023, a robust services sector could not fully offset weakness in the equally crucial manufacturing sector. 

Based on the advanced estimates released by the Ministry of Trade and Industry (MTI) on Jan 2, Singapore’s GDP for the last quarter rose by 1.7% on a q-o-q seasonally adjusted basis compared to the 1.3% q-o-q growth in the 3Q2023 and better than the “stagnation” seen between 4Q2022 and 2Q2023, Chua notes.

The pick-up in the final quarter of 2023 was also attributed to the manufacturing and construction sectors, while services remained resilient. As such, the economist believes that the manufacturing sector will be a key one to watch and will likely experience a turnaround after being in the doldrums for most of 2023.

“We continue to expect better manufacturing prospects and modest expansion in 2024, in tandem with the cyclical but uneven improvement in the global electronics cycle,” says Chua.

The construction sector, which recovered from the pandemic woes, helped to prop up 2023 and is projected to grow further this year with a healthy pipeline of projects, especially with the expected increase in housing.

The financial services sector is also expected to see a “gentle upturn” despite peaking interest rates. In Chua’s view, pausing global banks’ tightening cycles with the possibility of rate cuts in 2H2024 would support activity in financial services.

See also: Singapore’s core inflation eases to 2.9% y-o-y in June due to lower inflation for retail and services

For 2024, Chua is keeping his growth forecast of 2.2% y-o-y, which will be mainly external-led albeit likely to be fragile from the lingering global uncertainties. His forecast aligns with MTI’s forecast range of 1% to 3%, reiterated by Prime Minister Lee Hsien Loong in his New Year’s message.

Citi Research economist Kit Wei Zheng is equally upbeat, seeing upside risks for his 2024 GDP forecast of 2.5%. “(Jan 2’s) data implies a higher starting point for 2024 GDP and could mechanically lift y-o-y comparisons at least into 1H2024, with our 2.5% forecast implying sequential growth of just 0.3% q-o-q seasonally adjusted (versus [an] estimated trend of 0.6% to 0.8%),” says Kit.

In his 2024 outlook dated Dec 6, 2023, Kit predicted a trade-centric recovery in 1H2024 led by semiconductors. Memory chip exports are also likely to see the bottom on the back of stabilising end-demand for wireless products. Furthermore, capital expenditures for semiconductors will likely strengthen in 2024, helped by the de-risking-related diversification away from Taiwan and other parts of North Asia.

See also: S’pore growth ‘should strengthen this year’: MAS

As Kit sees it, the recovery in semiconductors should somewhat offset the slowing tourism-related and consumer sectors. For example, October to November arrivals fell to around 72% of 2019 levels compared to the 77% in 3Q2023.

“For now, weaker tourist arrivals, higher mortgage servicing burdens, and diversion of resident spending towards outbound travel have dragged down retail sales and the accommodation sector,” says Kit in his Jan 2 report.

“While job market tightness may continue to ease given the automated nature of the manufacturing recovery, should the trade recovery be stronger or more persistent than expected, this could spill over to more labour-intensive sectors, though more likely in 2H2024 rather than 1H2024. All measures of the unemployment rate fell in October while wage growth in 3Q2023 remains well above historical averages,” he adds.

Similarly, Maybank economists Chua Hak Bin and Brian Lee expect Singapore to see “stronger and more balanced” GDP growth of 2.2% for 2024, led by “green shots” of recovery in manufacturing even as revenge spending in the services sector fades.

“Global electronics demand is recovering, driven by a replacement cycle with new models and upgrades, depleting US inventories, and generous US subsidies on semiconductors and electric vehicles,” they write.

“China imports from Singapore are recovering more strongly than expected, despite a sluggish Chinese economy and real estate slump. Trade-related and outward-oriented services sectors, including wholesale trade and financial services, will revert to positive growth in 2024,” they add.

For Selena Ling, chief economist and head of global markets research & strategy at Oversea-Chinese Banking Corp (OCBC) 2024 is an “interesting year of change” as she sees GDP growth improving from a relatively low base in 2023. Headline and core inflation are also expected to subside.

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In her Nov 24, 2023 report, Ling notes that the global electronics cycle may have seen the bottom and may stabilise in the months ahead. Her predictions come as Singapore’s October NODX fell for the 13th straight month on a y-o-y basis but rebounded m-o-m. During the month, electronics exports contracted by a narrower 5.6% y-o-y, although it worsened to –12.7% y-o-y in November.

In her Dec 18, 2023 note, Ling sees an expected turnaround in global electronics demand for 2024. “Generative AI may provide some tailwinds into next year, but a recovery in personal computers and 5G smartphone demand will be pivotal to bolster the industry outlook after an extended downcycle,” she adds.

In his New Year message, PM Lee warns that the external environment will be “less favourable” for Singapore, with uncertainties including various geopolitical tensions such as if and when the US will start to cut rates.

“On the domestic front, do keep an eye on the upcoming 2024 Budget due on Feb 16, where additional Cost-of-Living assistance may be forthcoming for the lower-income and more vulnerable workers and households,” says Ling, who has pencilled in 2% growth for 2024.

RHB Bank Singapore’s acting group chief economist Barnabas Gan is the most bullish among his peers, with his expectation of 3% growth for Singapore this year, helped by above-consensus estimates for the US and China.

Gan is positive on the electronics, precision-engineering, transport-engineering, and general manufacturing industries. China’s potential economic recovery in 2024 may also fuel tourism demand in Asean-6 and Singapore, he adds.

For 1H2024, UOB’s senior economist Alvin Liew and associate economist Jester Koh warn that recovery in external-oriented sectors such as manufacturing, wholesale trade, transportation & storage, and finance & insurance could remain “choppy” although this could improve in 2H2024.

“Tailwinds from the post-pandemic boom in consumer-related sectors should dissipate in 2024, although further recovery in tourist arrivals from China could provide marginal support. We maintain our full-year 2024 real GDP growth forecast at 2.9%,” they write.

CGS-CIMB Research's economist Nazmi Idrus is expecting Singapore's GDP for 2024 to grow by 2.8%, underpinned by an electric & electronic (E&E) upcycle, potential spillover from China’s economic recovery, sustained tourism sector performance, with the impact of higher cost of living from GST hikes being offset by the government’s Assurance Package handouts.

"We expect inflation to moderate further in 2024, with headline CPI of 2.9%," he writes.

"Barring another unexpected shock in 2024, we expect a broader recovery in the demand for goods as central banks in major advanced economies start to trim their policy interest rates following the moderating inflation in their respective economies, while labour market conditions have softened more significantly," he adds.

In contrast, JP Morgan, citing limited domestic catalysts in the post-pandemic environment, believes that Singapore’s growth will soften further into 2024 with just 0.6% growth seen, says analyst Rajiv Batra.

Key themes in 2024

For 2024, BofA Securities economist Ang Kai Wei predicts a “modest turnaround” in electronics following the brokerage’s positive outlook for the memory segment and planned capacity expansions by major electronics companies such as GlobalFoundries and Siltronic. BofA Securities had previously projected global memory sales to grow by 48% y-o-y in 2024 compared to 2023’s 41% y-o-y growth.

The year will also see a considerably higher rate of personal savings compared to pre-Covid-19 trends, possibly reflecting lower outbound travel spending and increased precautionary savings and, or structural factors, says Ang.

“We estimate accumulated ‘excess savings’ [of] around $5 billion (0.8% of GDP). Further drawdown of ‘excess savings’ (even if some of it goes to outbound travel) should provide some support for real private consumption growth, with the latter facing some headwinds from subdued (or even negative) real median income growth,” notes the economist.

2024 may also see an early election with PM Lee indicating that he plans to hand over the reigns by November.

“In the lead-up, we expect a sharpened focus by the government in addressing cost-of-living concerns. Budget 2024 (likely February) could be more household-friendly than past years, with lower-income and middle-income groups to benefit most from generous measures,” says Ang. “Meanwhile, we also think there could be increased urgency to step up policy measures (if needed) to ensure more sustainable price movements in areas such as properties and cars.”

On a sectoral basis, Ang sees a modest turnaround in manufacturing growth as the inventory cycle becomes more favourable. He adds that the services sector is also likely to see growth similar to the pace seen in 2023, with trade-oriented services benefitting from firmer export performance, consumers drawing from their accumulated savings from the past few years, and tourism entering the final stages of recovery.

Maybank’s Chua and Lee see two key themes going into 2024: a political transition with a change in the country’s leadership and a green transition that will see Singapore deploy massive capital to prepare for climate change and achieve its net-zero emissions target by 2050.

“The government estimated that more than $100 billion will be needed to be spent over the next century on climate change protection,” write Chua and Lee.

“$5 billion has been injected toward a coastal and flood protection fund. The creation of a reclaimed 800ha ‘Long Island’ — twice the size of Marina Bay — on the East Coast is being studied. Singapore’s appetite for renewables will catalyse regional investments and trade, including solar energy from Johor and Indonesia, hydropower from Laos, wind power from Vietnam, and possibly hydropower from Sarawak in East Malaysia. Singapore is raising the carbon tax from $5 to $25 per tonne in 2024; $45 in 2026; and $50–$80 by 2030,” they point out.

DBS’s Chua sees seven key economic themes in 2024, including a gradual yet fragile external-led recovery.

In his report dated Dec 4, 2023, Chua expects Singapore to welcome more foreign investments stemming from the ongoing supply chain shifts, a less tight labour market, and a bumpy moderation in inflation, albeit averaging lower in 2024 compared to 2023.

A transition in Singapore’s leadership, its fiscal policy balancing multiple priorities and a normalised monetary policy are the other key themes identified for 2024.

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