Singapore said it expects the island’s economy to expand between 2% and 3% this year, narrowing the forecast on a resilient external demand outlook despite lingering risks.
The updated growth view from the Ministry of Trade and Industry was published Tuesday along with final second-quarter gross domestic product numbers, which showed expansion during the period matched the pace estimated initially.
GDP grew 0.4% in the three months through June from the previous quarter. Compared with the year-ago, the economy expanded 2.9%. The outcome prompted the city-state to narrow its expectation for 2024 growth to come in at the upper half of the 1% - 3% range forecast previously.
Second-quarter growth was driven by the finance and insurance, and information and communications sectors. By contrast, manufacturing contracted, largely due to a sharp decline in pharmaceuticals output in the biomedical manufacturing cluster, the MTI said. Annual growth in services producing industries slowed to 3.7% from 4.3% in the prior quarter, it added.
“The projected recovery of the manufacturing sector, particularly the electronics cluster, is expected to benefit trade-related services sectors,” Gabriel Lim, MTI’s permanent secretary, said in a briefing after the release. “Meanwhile, the continued recovery in air travel and tourism demand will support growth in the aviation- and tourism-related sectors. Growth in the finance and insurance sector should also remain robust.”
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Lim added that Singapore’s external demand outlook remained “resilient” for the rest of the year, though he cautioned that downside risks linger in the global economy.
Recent talks about a US recession has added to worries about weakening demand in a world already grappling with geopolitical tensions and China’s uneven recovery. That’s bad news for trade-reliant economies such as Singapore, given the value of its goods and services exports was about 1.6 times the size of its GDP in 2023.
Another cause for concern is this month’s gyrations in financial markets as feeble US jobs report and a second interest rate hike by the Bank of Japan this year drove traders to safe haven assets such as the Treasury bonds.
Edward Robinson, deputy managing director at the Monetary Authority of Singapore, said it’s too soon to say whether the unwinding has occurred.
“We will need to sort of keep significant vigilance across the next few months as this process takes place, this adjustment of currencies to differential exchange rate stance,” he said at the media briefing. “For Singapore, currency movements are mitigated by the fact that the framework allows us to absorb that volatility.”
Robinson added that financial markets in the region need to be “watched carefully” too in the next few months.
The MAS guides the local dollar against a basket of its major trading partners and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of the currency band.
The central bank will hold its next review in October - its last of the year - and Bloomberg Economics expects policy settings to remain unchanged again as core inflation remains elevated. The MAS doesn’t expect the gauge to fall to 2% before 2025.
Elevated living costs remain top of mind for Prime Minister Lawrence Wong who pledged to “redouble efforts” to tamp down rising prices.
On the eve of Singapore’s National Day last week, Wong laid out plans to help citizens deal with “employment setbacks” and strengthen social safety nets.
