With the global economy facing an uneven picture ahead, the Ministry of Trade and Industry (MTI) has maintained its full-year 2023 GDP growth forecast of between 0.5% and 2.5%, with growth likely to come in at around the midpoint of the range.
In the first quarter of 2023, Singapore’s economy grew by 0.4% on a y-o-y basis, moderating from the 2.1% expansion in the previous quarter.
Although higher than the MTI’s advance estimates of 0.1%, growth was still weighed down by the manufacturing, wholesale trade and finance and insurance sectors, which contracted amidst weakness in the global economy and the electronics downcycle.
On a q-o-q seasonally-adjusted basis, GDP shrank by 0.4% in 1Q2023, reversing the 0.1% growth posted in the last quarter of 2022.
In a media briefing, MTI permanent secretary Gabriel Lim says that taking into account the country’s Q1 performance, this has provided “more clarity” to earlier projections.
Lim notes that although the performance of advanced economies such as the US and Eurozone has turned out to be “more resilient than expected”, growth in these regions, supported by domestic services demand, is expected to decelerate more significantly in the second half of 2023 due to the “lagged effects” of monetary policy tightening.
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Meanwhile, the economic recovery of China — another key market — is likely to be stronger than earlier expected, driven by a pick-up in domestic services consumption with the end of pandemic-related curbs, even as its industrial sector remains sluggish, Lim adds.
However, continued stresses in the Chinese property market, as well as weakness in its industrial sector as a result of subdued
external demand conditions, will continue to weigh on its recovery, says MTI.
‘Deeper downturn’ for manufacturing
In tandem with weaker global semiconductor demand, as well as a “sluggish” outlook for petrochemicals with demand from China remaining poor, Singapore’s trade-driven manufacturing sector is projected to see a deeper downturn, says Lim.
The key manufacturing sector has already seen output contractions in the electronics and precision engineering clusters, and was down again in 1Q2023, contracting 5.6% y-o-y, compared to a contraction of 2.6% in the preceding quarter.
Singapore’s trade performance also took a hit in 1Q2023. In a separate announcement, Enterprise Singapore downgraded its full-year non-oil domestic exports (NODX) forecast to a contraction of 10% to 8%, after NODX slumped by 16.2% for the quarter ended March. The earlier projection was for a contraction of 2% to 0%.
Total merchandise trade declined by 7.8% in 1Q2023, extending the 1.0% decrease in the last quarter of 2022, with non-oil trade
declining 9.5% and oil trade recording flat performance.
The sector continues to be weighed down by the ongoing manufacturing downcycle and lower oil prices, says the trade promotion agency.
Bright spots
However, the growth outlook within Singapore is not entirely bleak. Economic sectors such as air transport and hospitality have extended their post-pandemic rebound, given the ongoing recovery in international air travel and inbound tourism.
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These include the air transport, accommodation and arts, entertainment and recreation sectors, as well as the aerospace segment of the transport engineering cluster.
The construction sector was also a bright spot, recording an expansion of 7.2 % y-o-y although moderating slightly from the 10% growth recorded in the preceding quarter.
In addition, neighbouring Asean economies are seeing steady growth prospects despite weaker external demand for their merchandise goods and commodities, supported by resilient domestic demand as well as the continued recovery in tourism demand.
For the year ahead, the Singapore government maintains its usual cautious tone, citing the increase of downside risks with recent banking sector stresses abroad.
This has the effect of raising the risk of a sharper-than-expected tightening in global financial conditions, which could weigh on consumption and business investments and lead to a broader retraction in global growth beyond the manufacturing downturn.
Escalations in the war in Ukraine and geopolitical tensions among major global powers could also lead to renewed supply disruptions, dampen consumer and business confidence, as well as weigh on global trade.
Technical recession?
Speaking at the same briefing, MTI chief economist Yong Yik Wei is maintaining her baseline that Singapore will not see a technical recession this year. Even if the country were to slip into a technical recession — defined as two consecutive quarters of negative growth — she says it would be led mainly by the downturn of manufacturing and trade.
Yong expects the consumer-facing sectors to remain “resilient”, providing some support to growth, as well as to employment.
However, OCBC chief economist Selena Ling notes that this does not “rule out” some quarterly declines in 2023.
Her full-year GDP growth forecast remains at around 1.5%, predicated upon 2Q2023 GDP growth improving to about 1.8% y-o-y — even though she sees manufacturing underperforming again with another contrac- tion of 3.1% in the next quarter.
According to Ling, the second half of the year is likely to herald a modest manufacturing recovery compared to the 2H2022, although the full-year is still likely to see a y-o-y contraction.
Services should also accelerate from 2Q2023 onwards, given the strong rebound in international visitors which will bode well for the hospitality-related and F&B industries.
She also notes that the normalisation of the global financial industry after the Silicon Valley Bank crisis suggests that there is limited contagion or fall-out worldwide.
‘Healthy’ labour market
Ling says labour market conditions in Singapore remain healthy, with an addition of 40,100 jobs to employment levels and the low unemployment rate of 1.8% in 1Q2023 not pointing to any significant retraction in hiring or wage growth intentions.
Similarly, there should not be any significant contraction in private consumption in the short-term even if some softening may kick in for the coming quarters, she adds.
ESSEC Business School’s associate professor of economics Jamus Lim believes labour market tightness will be noteworthy in the coming quarters. “Unemployment has remained very low, and while this is great news from the perspective of worker welfare, there is a risk that core inflation — which has remained stubbornly elevated at 5% — begins to embed a wage component, as opposed to mostly pass-through from high food and energy prices.”
If this were to happen, Lim says the government could find itself in the “uncomfortable position” of needing to tighten monetary policy to further contain inflation, at risk of derailing growth even further.
During the briefing, MAS chief economist Edward Robinson reiterated that the central bank’s current monetary policy stance — which it kept unchanged in April for the first time after five consecutive moves of tightening — is “appropriate”.
Maybank analysts Chua Hak Bin and Lee Ju Ye believe that given that the official economic prognosis has not deviated significantly since the April Monetary Policy Statement, and that core inflation print in April has remained sticky around the 5% handle, it is likely that MAS will continue to hold its position until the next scheduled meeting in October.
“But any expectations for an easing is probably premature at this juncture,” they add.
Meanwhile, the Maybank analysts say their outlook for Singapore’s economy is “less optimistic” than MTI’s and see the economy “stagnating rather than rebounding” in the coming quarters, with a rising risk of a technical recession inbound.
Their GDP growth forecast for 2023 stands at 0.8%, closer to the tail-end of MTI’s forecast range of 0.5% to 2.5%.
The analysts expect weaker performance in the external-oriented sectors of manufacturing, wholesale trade, water transport, and finance and insurance to likely offset the resilience in construction and tourism-related sectors such as accommodation, air transport and food services.
Based on their estimates, 2Q2023 growth would have to come in at a y-o-y increase of 0.5% or above in order for Singapore to avoid a technical recession.
On China’s recovery benefitting Singapore, they note that the return of Chinese tourists has been “more a trickle than a flood”. A potential Singapore-China deal involving visa-free travel or relaxed visa restrictions could boost China tourists numbers later in the year if the deal materialises, say Chua and Lee.
Exports to China also contracted sharply in April, suggesting a “limited boost” to Chinese import demand from its reopening. “Singapore may slip into a technical recession if the boost from China’s reopening fails to materialise in the second quarter,” add the analysts.
