News analysis

Brighter 2017 outlook for economy tempered by caution

Growth driven by trade and manufacturing could moderate later in the year: Economists

Gloomy headlines about the economic outlook have become almost par for the course in recent years, but 2017 finally seems to be bringing brighter prospects.

However, these come tempered by caution, with some economists already warning that the trade- and manufacturing-driven lift could moderate later in the year.

Singapore's economy is expected to pick up this year, with the Ministry of Trade and Industry (MTI) tipping growth of more than 2 per cent on the back of an improving global outlook. While the ministry has not adjusted its official growth forecast range of 1 per cent to 3 per cent, it said yesterday that "barring the materialisation of downside risks, growth is likely to come in higher than 2 per cent".

It released its updated outlook alongside final figures for the first three months of the year, which showed the Singapore economy expanded 2.7 per cent year-on-year in the January to March quarter, lifted largely by a resurgent manufacturing sector. This was slightly stronger than previous estimates of 2.5 per cent growth.

Also, trade agency IE Singapore has upgraded its forecast for Singapore's exports this year. It now expects non-oil domestic exports to grow 4 per cent to 6 per cent this year, up from earlier estimates of zero to 2 per cent.

These developments come on the back of an improving global economic and trade outlook, which has helped lift Singapore's trade-related sectors.


In particular, electronics manufacturing has enjoyed robust growth since the fourth quarter of last year. The segment has benefited from surging global demand for semiconductors and posted strong data over the past half-year.

MTI said yesterday that growth in the electronics and precision engineering clusters "is expected to be sustained for the rest of the year". Likewise, the transportation and storage sector is likely to benefit from the projected improvement in global trade flows.

Sectors like information and communications, education, health and social services are also expected to remain resilient.

But not all industries are doing well; it is still tough going for those relying largely on local demand.

Consumer sentiment remains cautious and continues to weigh on sectors such as food services and retail. This is largely because the pickup in economic growth has not yet translated into improvements in the lacklustre labour market.

Mr Terence Ho, divisional director of the manpower planning and policy division at the Ministry of Manpower, told a briefing yesterday that the labour market performance will remain modest this year as businesses continue to restructure and some sectors grapple with cyclical weaknesses.

MTI also warned of external risks that could derail Singapore's nascent trade-driven recovery.

"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," said OCBC economist Selena Ling.

United Overseas Bank economist Francis Tan felt the first quarter's 2.7 per cent growth rate "could be the peak" for this year, with the pace likely to moderate over subsequent quarters. This is partly because "double-digit growth for semiconductor production may slow into the single digits as we proceed into the second half of the year, due to base effects and slower growth in capital expenditures expected in China", he noted.

DBS senior economist Irvin Seah agreed, noting: "The manufacturing sector is expected to run sideways and might even moderate in the second half or towards the end of the year. Overall economic growth is likely also to mirror that trend."

A version of this article appeared in the print edition of The Straits Times on May 26, 2017, with the headline 'Brighter 2017 outlook tempered by caution'. Print Edition | Subscribe