SINGAPORE (Dec 18): HSBC Global Research says Singapore’s domestic economy could improve, even as GDP growth is forecast to ease to 2.7% in 2018, from the 3.3% expected in 2017.

“It’s been a blockbuster year for Singapore. Rising external demand has led to a strong pick-up across the manufacturing sector this year, but semiconductors have contributed to most of the upside growth surprises,” says HSBC economist Chen Jingyang in the 1Q18 report on Asia economics.

According to Chen, the global demand for semiconductors has been driven by a global tech upswing since 2016.

However, Chen notes that while the export expansion supported impressive GDP growth, the pass-through to the domestic economy has been limited, especially in wages and consumption.

“Fortunately, a gradual recovery in service activities has boosted domestically-oriented industries,” says Chen. “Trade-related services such as financial services and ‘wholesale & retail trade’ have expanded, in line with faster growth seen in the region.”

In addition, real estate-related activities also saw a gradual turnaround over the past two quarters.

See: Singapore economy forecast to grow by 3.3% for 2017: MAS survey

“We believe tech sector activity may ease slightly into next year as the pace of expansion in the global electronics industry tapers off gradually. But domestic-oriented activities will likely provide a greater boost to growth on the back of a more active property market and improving consumer sentiment,” Chen says.

According to Chen, the Monetary Authority of Singapore (MAS) is also likely to adopt a positive slope for the SGDNEER policy band in April.

“MAS is likely to raise the slope in increments, similar to the way it has eased policy since 2015, and will adjust based on the pace of the economic recovery and labour market improvements in the coming years,” Chen says.

At the same time, the analyst believes the government is likely to announce a GST hike from 7% to 9% in the 2018 budget, as lower growth has led tax revenue to fall short of rapidly growing expenditure on healthcare and infrastructure.

“We believe that a goods and sales tax (GST) rate hike is the most likely option given its broad reach and relatively low level compared with most regional peers,” Chen says.

In addition, Chen opines that Singapore’s property cooling measures are likely to stay – for now, at least.

See: Realty check

“Due to lingering household debt risks, we expect the MAS to maintain the broad array of macroprudential policies currently in place, especially since the recent property market activity stemming from ‘en bloc’ activity appears to be worrying the MAS,” Chen says.

MAS has “warned about ‘excessive exuberance’ in the property market, which could lead to a supply-demand imbalance,” the analyst notes.