SINGAPORE - The economy's disappointing performance in the second quarter has prompted some economists to downgrade their forecasts for Singapore's full-year growth.
The slower-than-expected numbers have also raised the possibility of the Monetary Authority of Singapore (MAS) acting to slow the appreciation of the Singapore dollar at its next policy review in October, some economists say.
The Singdollar meantime hit a five-week low on Tuesday morning following the release of the flash estimates. The currency lost as much as 0.4 per cent to 1.3622 per US dollar, its weakest since June 8.
A lacklustre showing in the manufacturing sector dragged down economic growth in the second quarter of this year, which came in at just 1.7 per cent - the slowest since the third quarter of 2012.
This was significantly below the 2.6 per cent tipped by economists in a Bloomberg poll, and also lower than the 2.8 per cent logged in the first three months of the year.
Barclays economist Leong Wai Ho said he has lowered his forecast for full-year economic growth from 3.4 per cent to 2 per cent. The Government is also likely to narrow its forecast range to 2 to 3 per cent, from the current 2 to 4 per cent, said Mr Leong.
UOB economist Francis Tan has also downgraded his forecast to 2.5 per cent growth for the full year, down from 2.9 per cent. This takes into account the economy's weak showing in the first half of the year and increase in uncertainties in the trade sector,"Mr Tan said.
ANZ economists Glenn Maguire and Daniel Wilson expect growth to pick up in the second half of this year.
However, if the economy continues to languish the MAS has room to ease its Singdollar policy, they noted.
Singapore conducts monetary policy by managing the exchange rate against a basket of currencies of its major trading partners.
The exchange rate is allowed to float within a policy band that MAS can adjust when it reviews monetary policy twice a year.
A stronger Singdollar, which can be achieved by making the band's slope steeper or lifting its mid-point, helps to dampen inflation by making the prices of imported goods lower. On the other hand, a weaker Singdollar helps exporters, whose goods become less expensive in foreign markets.
MAS can also opt to widen the band to accommodate greater fluctuations in the exchange rate.