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Manufacturing weakness shrinks Singapore economy growth forecast for 2023

Bryan Wu
Bryan Wu • 4 min read
Manufacturing weakness shrinks Singapore economy growth forecast for 2023
Market watchers have reduced their median forecast for manufacturing for the 2023 to a decline of 1.3%. Photo: The Edge Singapore
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Singapore’s economy is now expected to grow by just 1.4% this year, according to experts surveyed by the Monetary Authority of Singapore (MAS). The central bank’s June survey of professional forecasters saw the latest estimate come in lower than earlier growth forecasts for 2023 of 1.9% in March.

According to the 26 economists and analysts who responded to the survey, the most likely outcome is for the Singapore economy to grow by 1.0% to 1.9% in 2023, with an average probability of 45.5%. This is a full percentage point lower than the previous MAS survey in March, in which respondents assigned the highest probability of growth outturns between 2% to 2.9%.

Respondents expect Singapore’s economy to grow by 1.5% in 2Q2023. Meanwhile, they have projected Singapore’s CPI-All Items inflation or headline inflation and MAS Core Inflation to be at 5.2% and 4.6% for the second quarter of 2023, respectively.

Market watchers polled projected headline and core inflation for 2023 to stand at 5% and 4.1%, respectively, unchanged from the March survey. Notably, their forecast for this year’s headline inflation narrowed to 5% and 5.4% from between 4.5% and 5.9% in March. Core inflation is still expected to come between 4% and 4.4%, similar to the previous forecast.

Within the labour market, the unemployment rate is expected at 2.1% at the end of this year. For 2024, respondents have kept to March projections that Singapore’s economy will expand by 2.5%, with the most probable outcome for growth falling between 2.0% and 2.9%. The average probability assigned to the range is 36.1%, up slightly from 33.2%.

Headline inflation is forecast to come in at 3.3% next year, while core inflation is pegged to come in at 3%. Respondents assigned the highest probability to the 3.0% to 3.4% range for headline and core inflation figures, similar to the March survey.

See also: Singapore core inflation unchanged on stable energy, food costs

OCBC’s chief economist Selena Ling says the MAS survey results were “generally close” to her expectations. Ling calls for 1.5% growth in 2023 and 2.5% in 2024, with headline and core inflation to average around 5% and 4%, respectively, this year and moderate further in 2024.

Ling says that the growth forecast downgrade for Singapore’s GDP in 2023 reflects the bigger-than-expected weakness in manufacturing in 1Q2023, which was most pronounced in the electronics manufacturing sector.

Manufacturing recorded a y-o-y slump of 5.6% in the first quarter of 2023, even lower than respondents’ median negative growth forecast of 2.6% in the March MAS survey. Market watchers have reduced their median forecast for manufacturing for the full year to a decline of 1.3%, down from their earlier forecast of 0% growth in March.

See also: Analysts mostly keep NODX forecast after May numbers

Like Ling, DBS Group Research economist Chua Han Teng says the reduction in median forecasts for Singapore’s 2023 full-year growth outlook was “unsurprising” to him and reflected the soft global demand facing Singapore’s externally oriented economy.

In the latest survey, he notes that spillovers from an external growth slowdown became the most cited downside risk to Singapore’s domestic economy, with 61% of respondents citing the global downturn. Survey results from MAS show that the external slowdown was also most frequently ranked as the top downside risk, with 28% of respondents identifying it as such.

Considering the global external headwinds, DBS lowered Singapore’s 2023 full-year growth forecast to 1.7% from 2.2% earlier this week. “We think trade-related sectors, including manufacturing and wholesale trade, are likely to underperform in 2023, which was also shown in the June 2023 survey,” adds Chua.

Respondents also flagged inflationary pressures and escalation in geopolitical tensions as risks to the domestic growth outlook. “Advanced economies are still contending with high-interest rates, while the post-pandemic recovery is bumpy in China,” the DBS economist explains.

OCBC’s Ling adds that given China’s reopening hopes have somewhat “fizzled” of late with some deceleration seen in the recent April and May economic indicators, she believes there is a heightening of concern for a more prolonged soft patch into the second and third quarter of 2023.

Despite these concerns, 71% of survey respondents indicated that China’s robust growth, underpinned by its economic reopening and macroeconomic policy easing, could provide some tailwinds to Singapore’s growth outlook this year. It was also most frequently ranked as the top upside risk, with 29% of respondents doing so. “China’s ongoing economic recovery from reopening remains a key factor to watch,” says Chua.

“China is Singapore’s key export market, and expectations, for instance, from May 2023’s manufacturing Purchasing Managers’ Index (PMI) release, are for a broadening Chinese recovery to boost Singapore’s manufacturing sector in the coming months.”

Given the impetus from returning Chinese tourists and normalisation in international travel, he expects the outlook for Singapore’s services sector, including the hospitality, tourism and food and beverage industries, to stay “robust” in the second half of 2023.

Most survey respondents also identified less restrictive global financial conditions, including rate cuts by central banks, as an upside driver of the domestic financial market and lending conditions while capital inflows into Singapore and easing inflation could also improve the domestic outlook.

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