Singapore
economy seen improving, but there are still
headwinds
SINGAPORE: The outlook for Singapore’s economy seems to have
become less gloomy since the turn of the New Year, with
first-quarter growth beating estimates and the Government expecting
a higher gross domestic product (GDP) figure this year.
But even as brighter prospects beckon after a rollercoaster
2016, challenges remain.
One niggling concern is the uneven recovery in the economy,
where renewed strength appears limited to certain trade-related
sectors – specifically, the electronics and biomedical
manufacturing clusters.
Echoing the Ministry of Trade and Industry's (MTI) view of “a
certain unevenness” in the economy, experts told Channel NewsAsia
that the outlook for other sectors beyond manufacturing continues
to look lacklustre.
For one, the services sector, which makes up two-thirds of the
economy, remains stuck in low gear. While it expanded 1.6 per cent
year-on-year in the first quarter, the sector contracted by 2.1 per
cent on a quarter-on-quarter seasonally adjusted basis, with the
drag coming from wholesale retail trade, accommodation and food
services and financial services.
“A lot of the weightlifting is coming out of manufacturing,
especially the semiconductor industry which has been
extraordinarily strong, but once you exclude all of that, it is not
a picture of a healthy economy,” said Nomura economist Brian Tan.
“The question now is how long this uplift from manufacturing will
continue.”
Alluding to the moderation in first-quarter growth, economists
agree that the resurgence in the local manufacturing sector will
likely take a pause in the coming quarters.
DBS senior economist Irvin Seah said there are increasing signs
that the manufacturing rally could be coming to an end. “PMIs
(purchasing managers' indexes) in US and China and recent NODX
(non-oil domestic exports) have all fallen in the latest April data
set, suggesting that the run-up in global consumer demand could be
waning.”
Singapore’s exports posted a surprise 0.7 per cent year-on-year
drop last month, halting five consecutive months of growth, on the
back of a downward swing in pharmaceutical exports.
This could throw up uncertainties for the economy moving
ahead.
“We are expecting manufacturing growth to moderate gradually as
we get through the rest of the year and if the broader economy does
not benefit from the pick-up by then, we could get significantly
lower GDP,” said Mr Tan.
The local labour market will likely stay weak, weighed down by a
patchy economic recovery and structural challenges.
“If you look at the job cuts in the first quarter, they were
concentrated in the manufacturing and construction sectors. This
may seem like an irony given the growth in manufacturing, but it’s
really by design as the Government looks to reduce labour-intensive
jobs and head towards advanced manufacturing and precision
engineering,” said Maybank Kim Eng economist Chua Hak Bin.
“Some of the indices suggest that hiring may improve but I
suspect that any recovery will be like the economy – slow and
uneven.”
UNCERTAINTIES REMAIN IN EXTERNAL OUTLOOK
Meanwhile, Singapore’s trade-reliant economy remains sensitive
to uncertainties in the global economy.
On Thursday, MTI said that while it expects global growth this
year to be higher than that in 2016, key risks such as rising
anti-globalisation sentiments, political risks and economic
uncertainties in Europe and the US remain.
In Asia, the possibility of tighter monetary conditions in
China, which is a major trading partner for Singapore, may derail
growth.
“The fact that an essentially more optimistic outlook statement
came with the usual caveat of risk warnings about
anti-globalisation (and) protectionist threats, as well as monetary
conditions tightening and slower-than-expected growth in China,
suggests an improved but still cautious perspective,” OCBC's head
of treasury and strategy Selena Ling wrote in a note.
This means that the Monetary Authority of Singapore (MAS) will
likely be parsing second-quarter growth indicators for clues before
it decides on its next policy move. Last month, the central bank
opted to stand pat on its neutral policy stance of zero per cent
appreciation of the S$NEER (Singapore dollar nominal effective
exchange rate).
“The current recovery pace suggests that they may stay on a
neutral bias,” said Dr Chua. “MAS may move to a slight appreciation
bias but only if the numbers for the second quarter confirm that
recovery continues to strengthen and broaden.
Source: CNA/sk