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Robust Q1 growth boosts Singapore’s full-year GDP growth forecast

SINGAPORE — Reflecting greater optimism in the Singapore economy, the Ministry of Trade and Industry (MTI) has raised the lower limit of its Gross Domestic Product (GDP) forecast range to 2.5 per cent, up from 1.5 per cent.

SINGAPORE — Reflecting greater optimism in the Singapore economy, the Ministry of Trade and Industry (MTI) has raised the lower limit of its Gross Domestic Product (GDP) forecast range to 2.5 per cent, up from 1.5 per cent.

The economy is now expected to grow between 2.5 per cent and 3.5 per cent this year, MTI said on Thursday (May 24).

The revised full-year forecast came after a strong first quarter performance, which saw the economy grow by 4.4 per cent compared to the same period last year — slightly higher than the advance estimates of 4.3 per cent, and faster than the 3.6 per cent growth in the fourth quarter of last year.

Economic growth in the first three months of the year were mainly driven by the manufacturing as well as the finance and insurance sectors.

Going forward, fears over a potential trade war between the United States and China have lessened, economists told TODAY. But a new concern has emerged: Financial vulnerabilities in emerging economies such as Indonesia and India which are currently experiencing current account and fiscal deficits, against the backdrop of rising global interest rates and generally tightening financial conditions.

If this occurs, there could be some pullback in investment and consumption growth in these economies, MTI noted.

MTI said the US-China trade situation remains a concern but the ministry was cautiously optimistic about it. Meanwhile, the economists were confident that a trade war would be unlikely, despite recent mixed signals.

On Wednesday, US President Donald Trump signaled a new direction in bilateral trade talks and said any deal would need "a different structure", fueling uncertainty over current negotiations. Two days earlier, both sides claimed victory and pledged to continue talking after last week's round in Washington produced pledges that China would import more American energy and agricultural commodities, although there were no specifics.

Speaking to TODAY, the economists reiterated that a trade war would harm both countries.

CIMB Private Banking economist Song Seng Wun noted that with the Republicans heading towards the mid-term elections in November, Mr Trump will likely ramp up the political rhetoric against China. "But actually, Mr Trump knows that both sides have much to lose," he added.

UOB Bank economist Francis Tan argued that the US has more to lose, given that it has been importing more capital goods from China — such as machinery and robotics — compared to consumer products.

"If you want to make America great again, you need those capital goods," said Mr Tan, referring to Mr Trump's campaign slogan. "The US can't produce such goods, so if there's a trade war, how can it make America great again? It's all just rhetoric."

While MTI is watching the situation, its director of economics division Yong Yik Wei noted that should it escalate, the impact of US' tariffs on Singapore would be minimal.

Affected products — including solar cells, washing machines and steel — account for just 0.09 per cent of Singapore's total domestic exports.

On a broader front, MTI said the global economy "has remained on a steady expansionary path" since the start of this year, with its full-year growth expected to improve slightly as compared to 2017. However, "uncertainties and downside risks" have also increased since early this year.

"Should these risks materialise, as usual we will review the appropriateness of the forecast range of 2.5 to 3.5 per cent," MTI permanent secretary Loh Khum Yean said at a media briefing.

A risk that has surfaced is financial vulnerabilities in emerging economies, particularly for those with elevated debt levels, including in the region, MTI said.

The economists noted that amid rising global interest rates, countries experiencing twin deficits might see their currency depreciate and in turn, deter both local and foreign investment.

"When they have deficits, these countries tend to import more than export. And you need more foreign currency to do that. For example, if Indonesia keeps selling its Rupiah to buy US dollar to import more goods, the Rupiah will depreciate," said Mr Tan.

The central banks in these countries would then resort to increasing the domestic interest rate, which would would restrict investment and consumption, as people will prefer to "put money in the bank", Mr Tan said. "That would cause economic growth to be at risk," he added.

At the briefing, Mr Loh was also asked about the potential economic impact of Malaysia's recent election results, which saw Pakatan Harapan toppled Barisan Nasional's 61-year uninterrupted rule.

Mr Loh reiterated that Malaysia is a "close neighbour and also a key economic trading partner of Singapore". The Republic is "monitoring developments there very closely, and we have an interest in Malaysia's stability and prosperity", he added.

Meanwhile, Singapore's total merchandise trade grew for the sixth consecutive quarter in the first three months of the year, expanding by 2.5 per cent, Enterprise Singapore said on Thursday.

Year on year, oil trade increased by 5.1 per cent in the first quarter amid higher oil prices, compared to a 27.7 per cent growth in the previous quarter. Non-oil trade rose by 1.9 per cent in the first quarter, following a 3.6 per cent increase in the previous quarter.

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