Economy expected to outdo last year’s 2 per cent growth

SINGAPORE — Spurred by sustained growth in the manufacturing and services sectors, the Republic’s economy expanded 2.7 per cent year-on-year in the first quarter, beating advance estimates.

Nevertheless, the Ministry of Trade and Industry (MTI) maintained its full-year growth forecast of between 1 and 3 per cent. However, it reiterated that barring the downside risks — such as rising anti-globalisation sentiments — coming to pass, the economy is likely to perform better than last year, which registered a 2-per-cent expansion. 

Some economists interviewed by TODAY noted that the economic performance this year may have already peaked in the first three months. 

“We believe that ... growth rates in the next three quarters will be lower, although (on average) still higher than 2 per cent year-on-year,” said UOB economist Francis Tan. 

Final data released by MTI on Thursday showed that growth surpassed the advance estimates released last month of 2.5 per cent. Singapore’s economy expanded by 2.9 per cent in the final quarter of last year. 

DBS senior economist Irvin Seah said the main concern was that the pick-up thus far has been uneven and restricted to only a few externally-driven clusters. “The rest of the economy has yet to feel the uplift and the labour market has also remained soft,” he said. “There are structural challenges weighing down on the domestic sectors and the doldrums is unlikely to dissipate in the near term.”

On the external front, Mr Seah said there were signs that China’s consumer demand may wane in the coming quarters, but the hope is on the United States picking up the slack through higher capital expenditure. 

MTI said the outlook for the global economy has improved slightly since the start of the year, driven by the advanced economies. “Overall, global growth this year is expected to be higher than that in 2016,” it said.

The ministry cautioned, however, that uncertainties and downside risks remained. For example, monetary conditions may tighten further in China amid efforts to contain leverage and risks in the financial system. 

“Should there be a steeper-than-intended pullback in credit, investment spending and hence growth in China could slow down more sharply than expected,” MTI said. 

For the first quarter, the manufacturing sector expanded by 8 per cent, higher than the advance estimates of a 6.6 per cent growth, but moderating from the 11.5 per cent growth recorded in the previous quarter. 

The sector’s growth was primarily driven by the electronics and precision engineering clusters, which expanded on the back of robust global demand for semiconductors and semiconductor manufacturing equipment.

Services-producing industries grew 1.6 per cent for the first three months of this year, with most of its segments registering year-on-year growth except for accommodation and food services which fell by 1.9 per cent.

The construction sector shrank 1.4 per cent, extending the 2.8 per cent decline in the previous quarter, due to continued weakness in private sector construction works. 

With the absence of strong upsides to economic growth, and inflationary pressures capped by the weaker labour market conditions, Mr Tan believes that the Monetary Authority of Singapore (MAS) will maintain its neutral policy stance of zero per cent appreciation of the S$NEER (Singapore dollar nominal effective exchange rate).

At a briefing, MAS assistant managing director (economic policy) and chief economist Edward Robinson reiterated that the authority’s April monetary policy statement “remains appropriate”.