Skip to main content

Advertisement

Advertisement

Batten down, stormy weather ahead for Singapore economy

Despite ending the year on a firmer footing, Singapore’s economic prospects in the coming year could be dimmed by a perfect storm of volatile global economy, rising protectionism and climbing interest rates.

Singapore’s economic prospects in the coming year could be dimmed by a perfect storm of volatile global economy, rising protectionism and climbing interest rates. AP file photo

Singapore’s economic prospects in the coming year could be dimmed by a perfect storm of volatile global economy, rising protectionism and climbing interest rates. AP file photo

Despite ending the year on a firmer footing, Singapore’s economic prospects in the coming year could be dimmed by a perfect storm of volatile global economy, rising protectionism and climbing interest rates.

Several significant international events set to take place in the months ahead — including the exit of the United Kingdom from the European Union, a new administration taking over the running of the United States and a faster pace of interest rate hikes — will have an impact on global economic conditions, and Singapore’s external-oriented economy will bear the brunt.

Trade around the world could slow further while higher interest rates may also hinder domestic consumption and investments, economists told TODAY.

The Government’s advance estimates released earlier this week showed that Singapore’s gross domestic product (GDP) grew 1.8 per cent last year, beating official estimates of 1 to 1.5 per cent. The Government expects growth in 2017 to be between 1 and 3 per cent, although private sector economists are less optimistic with a more conservative forecast of 1 to 2 per cent.

The economists TODAY spoke to said one of the drags on the Singapore economy will be the services sector, whose growth is expected to stay subdued in the coming year. The sector accounts for about two-thirds of Singapore’s GDP and any weakness would have a profound impact on the overall growth, they said.

UOB economist Francis Tan said, “Services is slowing down, and this is not a volatile sector so we can expect services to remain slow in 2017. There’s also a lack of catalysts regionally and globally, so it’s going to be another challenging year for services.

“Having said that, demand for semiconductors has been improving, and we expect demand to still be there in 2017. Singapore has a niche in semiconductor manufacturing, and with the rise of the Internet of Things, there’s more demand for chips, so this is good for Singapore.”

Manufacturers in the country have ramped up production of semiconductors, helping to lift the performance of the overall electronics clusters. CIMB Private Banking economist Song Seng Wun said in an economic climate dogged by uncertainties, “every little bit” of optimism will help get Singapore’s growth momentum going.

“From a macro standpoint, 2016 ended on a firmer footing, and the improving global environment is handy for an export-oriented economy like Singapore. The question is whether the underlying recovery is sustainable,” Mr Song said. He added that the low base of comparison and improving demand will help manufacturing register “more respectable numbers” this year. The sector’s growth could even surprise on the upside if there are no shocks, he said.

But others, such as Credit Suisse economist Michael Wan, were more pessimistic. Mr Wan expects weak domestic demand — in terms of both private consumption and investment — to outweigh improvements in global growth, and that can hamper Singapore’s prospects. The labour market here is also expected to continue deteriorating, with contracting employment growth as well as rising retrenchments and unemployment rate.

“While potential protectionist measures by the new US administration are unlikely to be directed specifically at Singapore, Singapore will still be affected indirectly by a trade slowdown amid policy uncertainty, or if a trade war between China and the US breaks out,” he added.

Such economic risks, as well as the advancement of technology that is changing the nature of businesses and jobs, are the reasons the Government has to push through the economic restructuring process, economists said.

The Committee on the Future Economy (CFE), co-chaired by Finance Minister Heng Swee Keat and Minister for Trade and Industry (Industry) S Iswaran, is tasked with charting the Republic’s next phase of growth. The committee is expected to unveil its recommendations this month.

Economists said Singapore has to embrace the digital economy and technology disruptions, and build up strength in these areas. “Digitisation, robotics, healthcare, growing regional wealth and consumption appear to be some of the growth sectors and areas that Singapore needs to be aware of and positioned in,” said Mr Edward Lee, Standard Chartered Bank’s head of economic research, Asean. “Employers and workers need to have the right skills while the Government helps to provide the right environment to facilitate growth in these segments. Singapore needs to remain an attractive location for innovative companies to base themselves in.”

He added, “In some way, the overarching aim of trying to keep Singapore (plugged into the) growth areas remains. The difficulty is identifying the areas, facilitating the changes and managing any potential fallouts.”

Mr Tan stressed the importance of policymakers setting the right strategy, given the current subdued sentiment. “There’s a lack of catalysts now, so a well-planned, well-communicated CFE (strategy) is very critical. We cannot simply wait for the US or China to pull us up,” he said.

The strategy that will be laid out by the CFE will carry Singapore through the long term. But to soothe the short-term pain, Mr Tan said the Government could give out tax reliefs to individuals and companies in the Budget.

Mr Song added that apart from the CFE recommendations, the Government can also hand out targeted measures to badly affected sectors. These can mirror the Government’s move last November to enhance certain assistance schemes to provide companies in the marine and offshore engineering industry with greater access to working capital and other financing.

“It’s going to be a challenge for the Government because the business cycle has shortened and technology is changing very quickly. Singapore already has the hardware, it is the software side, such as people’s mindsets and attitudes, that needs work on, so it has to be a light touch (from the Government) to make sure the entire environment is conducive for businesses to operate in,” Mr Song said.

Mr Lee said Singapore companies will also benefit from South-east Asia’s growth, which remains on track despite the headwinds in the external environment. “Singapore’s position as a wealth hub and regional treasury centre, and the Government’s continued efforts in transforming the nation, such as Smart Nation, SkillsFuture, the Industry Transformation Programme and financial technology — to name a few — will help companies prepare for further uncertainties and challenges,” he added.

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.