DBS cuts Singapore economic growth forecast as restructuring bites

SINGAPORE — DBS has become the latest financial institution to downgrade its 2014 growth forecast for Singapore, citing a tepid performance in the manufacturing sector and a persistent deceleration in services.

DBS said in a research note today (July 23) that it had downgraded its full-year economic growth forecast to 3 per cent from its previous prediction of 4 per cent.

The downgrade follows disappointing second quarter Gross Domestic Product (GDP) growth in the second quarter: The economy expanded 2.1 per cent between April and June from a year earlier, according to advance estimates released by the Ministry of Trade and Industry (MTI) earlier this month. That was Singapore’s weakest growth since the first quarter of last year, when GDP rose 1.5 per cent.

The weaker-than-expected performance prompted a number of analysts to trim their forecast for full-year GDP growth, although the consensus view is that the economy will still expand at a rate within the official forecast of 2 to 4 per cent.

In its research note, DBS said the manufacturing sector is struggling against a number of headwinds, including the impact of economic restructuring and weak export competitiveness: “The labour crunch remains a problem with higher costs affecting exporters’ ability to compete. The hope is for productivity growth to pick up but that will take time,” it said.

It added that the services sector, traditionally the most stable engine of growth, is becoming the biggest risk to the economy as the impact of the restructuring takes its toll. “The existing labour crunch due to curbs in foreign manpower has been taking a toll on this relatively more labour intensive sector,” DBS said, adding that there is a risk that the sector will continue to slow in the coming quarters as a result of such challenges.