Singapore on track for moderate growth in 2014, 2015

SINGAPORE — The Republic’s economy is on track for moderate growth this year and the next as a recovering external environment underpinned by growth in the United States is expected to lift prospects here.

However, some headwinds are likely to persist as demand in the eurozone and China remains sluggish, the Monetary Authority of Singapore (MAS) said yesterday.

In its twice-yearly macroeconomic review, the MAS said gross domestic product growth is likely to come in at between 2.5 per cent and 3.5 per cent this year and a broadly similar pace next year. This should be seen in the context of the domestic economy settling down to a slower, but more sustainable growth path, it added.

Following growth of 3.9 per cent last year, the Singapore economy has lost momentum. Gross domestic product between April and June grew 2.4 per cent from a year ago — the slowest since the first quarter of last year, as manufacturing and wholesale and retail trade saw much smaller gains.

Advance estimates released by the Ministry of Trade and Industry earlier this month showed a similar growth rate in the third quarter, well below the 2.8 per cent forecast in a Reuters poll of economists.

On the domestic front, a growing population base and private consumption are expected to support domestic-oriented sectors, although some industries will continue to face pressure from the ongoing economic restructuring and higher manpower costs, the central bank said in its report yesterday.

“The unevenness in growth performance is anticipated to persist. On the external front, the global economy will largely be driven by the US ... Thus, sectors that cater to final demand in the US will fare relatively favourably, while those that are tied to the eurozone and China could be weighed down by the sluggish performance in these economies,” the MAS said in the report.

“Meanwhile, domestic-oriented sectors will remain resilient on the back of firm underlying demand, although those segments that are more reliant on labour input, or face greater competition, could experience profit margin pressure,” it added.

Economists TODAY spoke to largely agreed with the MAS’ view, adding that momentum in the US would help drive growth in other economies and lift prospects across the board. This would bode well for Singapore’s electronics cluster, whose performance hinges on demand from advanced economies.

UOB economist Francis Tan said: “In the US, consumption and employment are improving, so that’s good news for manufacturers here. Besides affecting Singapore directly, greater consumption in the US may have a spillover impact elsewhere, for example, in the eurozone. With a weak euro, it makes sense for the US to purchase from (eurozone countries) and that will, in turn, help make the situation there less bad than it is.”

The MAS noted that a tentative improvement in US corporate information technology spending has played a part in the 6.5 per cent quarter-on-quarter, seasonally-adjusted growth in the electronics cluster in the third quarter, following a contraction of a similar magnitude in the previous three months.

However, CIMB economist Song Seng Wun cautioned against being too optimistic about America, as indications are only pointing towards modest growth.

“If we break it down, the US is supporting global growth, but it is fairly modest. The labour market is on the mend, but spending is on a very selective basis because, while jobs are being created, income growth isn’t as strong, because the private sector is selectively hiring,” he said.

“Global growth will continue to exhibit the same kind of profile in the last 12 months: Recovery, but not the kind that leads to a global rebound in demand for goods and services that Singapore can export to. Against that profile, without a full-fledged rebound or recovery, we will continue to see a modest recovery, but there’s nothing to shout about,” said Mr Song.