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Singapore likely to introduce stimulus measures following reduction in 2019 growth forecast: economists

Janet Ong
Finance Editor
The Ministry of Trade and Industry (MTI) on Tuesday (13 August) said Singapore’s economy is now expected to grow between 0 per cent and 1 per cent this year. (PHOTO: Getty Images)

SINGAPORE — Singapore may introduce measures to boost its economy after cutting its forecast for economic growth this year, economists said.

The Ministry of Trade and Industry (MTI) on Tuesday (13 August) said Singapore’s economy is now expected to grow between 0 per cent and 1 per cent this year, with the actual figure expected to lie around the midpoint of the forecast range. The MTI had in May narrowed the forecast to 1.5 per cent to 2.5 per cent growth.

“We expect the government to roll out stimulus measures to cushion the downturn and support (small and medium-sized enterprises), especially those in manufacturing and trade-related services,” said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye.

They downgraded their full-year gross domestic product (GDP) forecast to growth of 0.6 per cent from 1.1 per cent earlier, and to 1.6 per cent growth in 2020 from 2.1 per cent growth.

Maybank Kim Eng economists are expecting a technical recession — defined as two consecutive quarters of negative quarter-on-quarter growth — in the third quarter, given the escalating US-China trade war, compounded by the Japan-Korea trade spat and Hong Kong crisis. They expect that third-quarter GDP growth will likely turn negative on a year-on-year basis.

The cut in the trade-reliant economy growth forecast has fuelled speculation the Monetary Authority of Singapore may ease monetary policy in the semi-annual meeting in October.

“We expect the MAS to ease to a neutral or zero bias in October given the recession risks while inflation remains muted,” Chua and Lee said.

DBS senior economist Irvin Seah also noted that there is a high chance that “both monetary and fiscal policies will turn “more accommodative” given the “latest set of poor data”. The MAS is expected to flatten the slope of the Sing NEER policy band in October, he added.

“Though we do not expect a counter-cyclical fiscal stimulus package in the near term, a robust fiscal budget early next year should be a given,” said Seah.

The MAS operates a managed float regime for the Singapore Dollar, allowing the exchange rate to fluctuate within an unspecified policy band. It changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the local currency.

Non-oil domestic exports (Nodx) shrank 14.6 per cent in the second quarter from the year-earlier period as shipments of both electronic and non-electronic products declined, Enterprise Singapore said in a separate statement on Tuesday. Singapore cut its Nodx forecast to -9 per cent to -8 per cent for the year, and the projection for total merchandise trade to -3 per cent to -2 per cent.

Gloomy outlook

“Our view is that a fiscal policy response is likely forthcoming, possibly in the form of targeted help for businesses, especially SMEs, and workers, given that the Budget 2020 is only around six months away,” said Selena Ling, head of treasury research and strategy at OCBC Bank.

"Given that the current growth slowdown is concentrated mainly in manufacturing, especially electronics, and wholesale and retail trade, any fiscal assistance is unlikely to be broad-based at this juncture," she added.

For the second quarter, the economy grew 0.1 per cent on a year-on-year basis, unchanged from the MTI’s flash estimates last month. Final second-quarter figures showed growth contracting an annualised 3.3 per cent from the first three months of the year, versus the previous estimate of a 3.4 per cent contraction.

The median estimates in a Bloomberg survey of economists were for a 3 per cent contraction quarter-on-quarter and 0.2 per cent growth compared with a year ago.

The uncertainties and downside risks in the global economy have increased since three months ago, said the MTI.

“Against this challenging external macroeconomic backdrop and the deepening downturn in the global electronics cycle, the Singapore economy is likely to continue to face strong headwinds for the rest of the year,” the ministry added.

Prime Minister Lee Hsien Loong said in his National Day message that global demand and international trade have weakened and affected Singapore’s manufacturing sector and trade-related services.

"We have experienced such slowdowns before, and we will take this one in our stride," Lee said. "Should it become necessary to stimulate the economy, we will do so."

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