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Economists upbeat on Singapore’s growth prospects

SINGAPORE — Global economic conditions are set to improve in the months ahead, led by the advanced economies of the United States and Japan, the Monetary Authority of Singapore (MAS) said in its biannual Macroeconomic Review published on Thursday (April 27).

SINGAPORE — Global economic conditions are set to improve in the months ahead, led by the advanced economies of the United States and Japan, the Monetary Authority of Singapore (MAS) said in its biannual Macroeconomic Review published on Thursday (April 27).

Singapore is still expected to grow by 1 to 3 per cent this year, as forecast earlier and not markedly different from last year’s 2 per cent growth, the MAS said in the review on Thursday. 

Some economists expect the Republic’s growth forecast to be revised to the upper end of the 1 to 3 per cent spectrum in the months ahead, while others have maintained their full-year forecast, as structural headwinds in the labour market continue to persist. 

In the review on Thursday, the MAS added that the employment outlook for the local labour market is subdued. 

“In the near term, net employment growth is expected to stay modest and uneven across sectors”, and wages are likely to be capped amid the soft labour conditions, the MAS said. 

“As of now, we see an upside towards the higher end of the 1 to 3 per cent gross domestic product (GDP) growth forecast for Singapore,” CIMB Private Banking economist Song Seng Wun said. “So far there are improving signs of external demand, obviously not broad-based but it is enough to lift headline numbers. The improvement in global trade is good for export-oriented Singapore.” 

Mr Song, however, noted that there is still unevenness in the economy, with the services sector, in particular, lagging behind. Meanwhile, external risks such as trade-protectionist measures from the US still remain.

UOB economist Francis Tan predicted that a narrowing of forecast to the upper end of expectations may be likely in the months ahead. “(The) next revision will likely be a 2 to 3 per cent growth range,” he suggested.

ANZ economist Ng Weiwen meanwhile noted that the structural headwinds in the labour market and the cyclical improvement in trade-related economic sectors suggest only a modest improvement in growth, and maintains the Republic’s GDP growth forecast at 2.4 per cent for 2017.

Despite a better performance in some sectors, there is uneven growth in the Singapore economy amid soft labour market conditions, the MAS said in its 106-page report on Thursday.

“Growth this year will be anchored by the trade-related sectors, particularly the IT-associated segments. On the global front, new mobile phone product launches, together with increasing semiconductor intensity in electronics products, will provide support for the domestic electronics industry,” the central bank said.

While firm external demand will continue to benefit the semiconductor and precision engineering industries, recovery in the rest of the manufacturing sector would remain patchy, at least in the near term.

In contrast to the trade-related sectors which look to gain from relatively favourable external demand, the prospects for the domestic-oriented sectors are more muted, the MAS said.

Certain segments in the services sector, such as retail, are expected to face headwinds. 

“Spending on discretionary retail items and other services is expected to be dampened by the subdued labour market. Apart from cyclical developments, the retail sector has had to adjust to structural factors, including the rise of e-commerce. Nevertheless, domestic retailers can tap new and growing opportunities in the region through the digital channel,” the MAS said.

On the global front, things are looking up in the external environment: The US economy is expected to grow 2.2 per cent this year and 2.4 per cent in 2018, compared with 1.6 per cent last year. Underpinned by an expansionary fiscal policy, Japan’s economic growth this year is also expected to pick up slightly, compared to 2016. 

“Forward-looking indicators, such as new orders and composite leading indicators, as well as measures of economic confidence, including consumer and business expectations surveys, have lifted, suggesting that the improved growth momentum could continue,” the MAS said. “A rekindling of ‘animal spirits’ could increase household spending, business investment and risk-taking activities.”

However, shifts in the domestic and foreign policies of the US administration remain a risk, and the political uncertainty arising from key elections in Europe has further clouded the outlook, it added. “This rather upbeat sentiment has coincided with an environment of elevated policy uncertainty, and persistent risk factors could derail household and firm expectations.”

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