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Singapore economy likely to expand at slower pace amid trade frictions

Janet Ong
Finance Editor
A man jogging past the skyline of Singapore in October 2018. (Photo: Reuters/Edgar Su)

The Singapore economy is likely to expand at a firm but slower pace for the rest of the year and in 2019 as economic uncertainties have increased, the Monetary Authority of Singapore said in its macroeconomic review released Friday (26 October).

Singapore’s GDP growth should come in within the upper half of the 2.5-3.5 per cent forecast range in 2018, and moderate slightly in 2019, the central bank said, reiterating projections made earlier this month.

The bi-annual review comes two weeks after the MAS tightened monetary policy for the second time this year, as it expects inflation to increase modestly.

MAS expects core inflation to come in within the forecast range of 1.5-2 per cent for this year, up from 1.5 per cent in 2017. It expects core inflation, which excludes changes in the price of cars and accommodation, to average 1.5-2.5 per cent in 2019. Headline inflation is forecast to be about 0.5 per cent in 2018, slightly lower than in 2017, and is expected to pick up to 1-2 per cent in 2019.

Global growth is expected to moderate to 4.4 per cent in 2018 and 4.2 per cent in 2019 as economic and tech cycles mature, alongside increased trade frictions and tighter global financial conditions, the central bank said.

“Although there has been some détente between the US and several of its trade partners, trade tensions remain at the forefront of considerations for global growth prospects,” the report said.

The economic outlook has become more uncertain since the last review in April as US-China trade frictions have worsened in scale and intensity over the past six months, MAS said.  

However some of this uncertainty could be mitigated by the diversion of trade flows and production to Southeast Asia. A joint survey by AmCham China and AmCham Shanghai of 430 American companies in China have moved or are considering moving production abroad.

Apart from trade tensions, emerging market economies have seen capital outflows amid tightening global financial conditions, and this can dampen consumer and business sentiment, it said.

Little impact on Singapore from US tariffs on China

MAS said while Singapore’s trade data hasn’t shown any “discernible effects” from the restrictive trade actions, the negative spillovers are expected to impact the Singapore economy in the latter part of this year and beyond. Maturing global business and electronics cycles will also pose a mild drag on growth, the monetary authority said.

“On the domestic exports front, the electronics segment could be more affected as both Singapore and China are key nodes in the global electronics supply chain,” MAS said.

Over the past six months, contribution of the manufacturing sector to Singapore’s GDP growth has waned, largely a reflection of the maturing of the global electronics sector. The modern services cluster is expected to contribute more to growth in 2019 as digitalisation and innovation continue. Growth in the services sector stayed firm, mainly driven by financial and business services, as well as wholesale and retail trade.

The improving domestic labour market should underpin a faster pace of wage growth in 2018 and 2019 compared to last year, according to the report.

Other highlights of the review include:

  • The US economy is growing above potential and will outperform the rest of the G3. The G3 comprises the US, Japan and the eurozone. The US will continue to lead G3 growth into 2019, boosted by a strong expansionary fiscal impulse.
  • Weakness in Singapore’s construction sector should gradually dissipate. Contracts should pick up towards end-2018 as work starts on new residential developments following the recent spate of en-bloc private property sales.
  • Oil prices came in substantially higher than previously expected, but are expected to be relatively stable in 2019

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