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Singapore’s GDP growth to slow sharply in second half of the year

SINGAPORE — The Republic's economic growth is set to slow significantly in the second half of this year, amid global uncertainties and a slowdown in major economies including the United States, China and the eurozone.

SINGAPORE — The Republic's economic growth is set to slow significantly in the second half of this year, amid global uncertainties and a slowdown in major economies including the United States, China and the eurozone.

Singapore's economy grew by 4.2 per cent in the first six months of the year, based on latest data released by the Ministry of Trade and Industry (MTI) on Monday (Aug 13). However, economic growth is expected to moderate to 2 per cent or lower for July to December, according to estimates from private sector economists.

The Government is sticking to its full-year growth forecast of between 2.5 and 3.5 per cent, given that it had anticipated the less robust growth in the second half of 2018.

Revised data from the MTI showed that gross domestic product (GDP) grew 3.9 per cent year-on-year in the second quarter, slower than the 4.5 per cent growth registered in the previous quarter.

On an annualised and seasonally adjusted basis, the economy grew 0.6 per cent in the second quarter from the previous three months — slower than the Government's initial estimate of a 1 per cent expansion, and the median forecast in a Reuters survey of 1.3 per cent growth.

Speaking at a media briefing, Permanent Secretary for Trade and Industry Loh Khum Yean said that going forward, there is a risk that trade tensions between the US and its key trading partners could escalate, possibly leading to "a vicious (circle) of tit-for-tat measures".

"Should this happen, there could be a sharp fall in global business and consumer confidence, and in turn, investment and consumption spending. This could then have an adverse impact on global trade flows and global growth," he cautioned.

There is also a risk of higher-than-expected inflation as global financial conditions tighten. This could lead to a "faster-than-expected normalisation" of monetary policy in the US — potentially triggering capital outflows from emerging market economies, and cause financial vulnerabilities especially in economies with high debt levels.

While the expected second-half slowdown is significant, the economists pointed out that it would also be partly because of the high-base effect.

Singapore's economy grew by less than 3 per cent in the first half of 2017, and expanded by almost 5 per cent in the second half, with full-year growth coming in at 3.6 per cent.

Nomura's Southeast Asia economist Brian Tan said the impact of the expected slowdown will not be keenly felt on the ground, as the economy continues to expand.

Such sharp movements are par for the course for Singapore's economy, said DBS senior economist Irvin Seah. "Singapore has the most volatile growth in the region for sure", largely due to its small and open economy, he added.

Mr Seah noted that the impact of the global uncertainties is already playing out in the financial markets, with capital flowing out of emerging economies and equity markets underperforming.

The Singapore Straits Times Index has fallen about 10 per cent since the beginning of May, for example.

Monetary Authority of Singapore (MAS) deputy managing director Jacqueline Loh reiterated at the media briefing that the Government has anticipated the impending slowdown, and inflationary pressures are "expected to persist".

Apart from the GDP forecast, the Government is also maintaining its full-year core inflation forecast at the upper half of 1 to 2 per cent.

MAS' monetary policy stance, which was tightened slightly in April, remains "appropriate", Ms Loh said.

Nevertheless, Mr Tan and OCBC head of treasury research and strategy Selena Ling felt that the central bank could tighten the policy further in its October review.

Despite the external challenges, the MTI expects growth in the second half to mainly come from outward-oriented sectors, such as the manufacturing sector, wholesale trade, finance and insurance, as well as transportation and storage.

However, the growth momentum of these sectors is expected to ease in the coming months.

The manufacturing sector, which has been the key driver of Singapore's economy, is expected to slow significantly to a "low single-digit growth", according to Ms Ling.

It expanded 10.2 per cent in the second quarter of this year, compared to the same period last year. This was slightly lower than the year-on-year 10.8 per cent expansion in the first quarter — an indication that the sector's growth cycle has peaked, said Mr Seah.

Meanwhile, the construction sector contracted by 4.6 per cent year-on-year in the second quarter, compared to a 5.2 per cent decline in the previous quarter.

MTI economics division director Yong Yik Wei said the sector is bottoming out and might show some signs of picking up towards the end of the year, despite the property cooling measures announced early last month.

This is largely because the sector would be supported by an increase in the number of contracts awarded from the second half of last year, with up to 70 per cent of them being public sector infrastructure projects.

On whether the property curbs would affect overall economic growth, Ms Yong said that there would be a "slight impact" on the real estate sector, which makes up 4 per cent of Singapore's GDP.

"But I think we should also bear in mind that the Singapore economy is diversified, it should be able to withstand these tightening measures," she added.

Still, some economists felt that the cooling measures could have a significant impact on the real estate sector.

Adding that any recovery in the construction sector might be short-lived, Mr Tan said: "People are underestimating how serious the government is about cooling the property market. I do think that unless (property) prices fall noticeably… (it is) entirely possible (to have) another round of property cooling measures."

 

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