Slower economic growth to continue: MAS

SINGAPORE — The Republic is expected to continue to experience slower economic growth as the external environment deteriorates further and affects trade-related industries, the central bank said on Wednesday (April 27).

“The deterioration in the external environment will have a dampening effect on the Singapore economy…Since the last review, the growth outlook for Singapore’s key trading partners, such as the United States (US), Japan and the NEA-3, has weakened discernibly. Despite a rebound in global PMIs in March, manufacturing and services activity is still much lower on a year ago basis. Mirroring this downshift in the external environment, the Singapore economy will likely see a protracted period of modest growth in the quarters ahead,” the twice-yearly Macroeconomic Review report by the Monetary Authority of Singapore (MAS) showed.

NEA-3 refers to South Korea, Hong Kong and Taiwan.

The MAS has maintained its gross domestic product (GDP) growth forecast for this year at 1-3 per cent.

External-oriented industries will be impacted. This could weigh on the trade-related industries, particularly those with relatively high exposure to the global investment cycle, such as the precision engineering cluster, the MAS said in the report. “Further, activities tied to the oil & gas industry, including marine & offshore engineering, will continue to be affected by the cutback in global exploration and production expenditure. The electronics cluster will also be constrained by elevated worldwide inventory levels and overall lacklustre demand in the global personal computers and business IT segments,” the central bank added.

The report follows the Republic’s manufacturing output for March falling by 0.5 per cent last month with three out of six clusters - transport engineering, chemicals and precision engineering clusters - contracting.

Domestically-oriented industries are expected to be generally resilient, however, lingering pockets of weakness, stemming from a muted outlook for the domestic retail and real estate sectors, will continue to weigh on the cluster as whole, MAS noted.

On the ground, business sentiment was seen to be more downbeat, the MAS said, referencing a survey conducted by the Singapore Business Federation and DP Information Group recently, with SMEs as a whole not anticipating growth in the second quarter to third quarter of this year.

“Going forward, given the more downbeat external outlook, corporate margins could come under further strain in the near term,” MAS noted.

While most sectors will be facing challenging times going forward, one sector will be beating the odds. The long term outlook for regional services trade remains bright, due to China driving growth in demand for imported services as it continues on its rebalancing effort to drive its economy toward consumption.

“As much of China’s services sector remains underdeveloped, the country has been relying on imports to meet its increasing demand,” MAS said.

This switch in China’s footprint from global merchandise trade to services trade could provide significant opportunities for the region, and for Singapore.

“Singapore’s exports of services to China have been growing at an average pace of 15.2 per cent per annum in 2012-2014, about 1.8 times faster than Singapore’s services exports to the world. In particular, transport services as well as financial and insurance services have contributed most significantly to the strong growth rates in recent years,” MAS said.