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More to cheer about, but outlook for Singapore's economy remains cautious

SINGAPORE - 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, this sanguine sentiment is still restricted to certain sectors of the economy and it remains to be seen whether it can be sustained.

Singapore's economy is expected to pick up this year, with the Ministry of Trade and Industry (MTI) tipping growth above 2 per cent on the back of an improving global outlook.

While the ministry has not adjusted its official growth forecast range of 1 to 3 per cent, it said on Thursday (May 25) that "barring the materialisation of downside risks, growth is likely to come in higher than 2 per cent".

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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.

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

 
 

These developments come on the back of an improving global economic and trade outlook, which have 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 has been posting strong data over the past half-year.

The MTI said on Thursday 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 as well as 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 which rely largely on local demand.

The pick-up in economic growth has not yet translated into improvements in the labour market, which remains lacklustre.

This means consumer sentiment remains cautious and continues to weigh on sectors like food services and retail.

The construction sector is also expected to be adversely affected by weak private sector building activity, the MTI noted.

Even within manufacturing, performance has been patchy. For instance, the transport engineering segment - which includes the marine and offshore sector - is still suffering on the back of the fall in oil prices.

"The rest of the economy has yet to feel the uplift and the labour market has also remained soft. Plainly, there are structural challenges weighing down on the domestic sectors and the doldrums are unlikely to dissipate in the near term," DBS senior economist Irvin Seah said.

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

Rising anti-globalisation sentiments could adversely impact global trade if they result in increased protectionism. In addition, political uncertainties remain, including the outcome of Britain's Brexit negotiations.

Lending conditions may also tighten further in China amid efforts to contain leverage and risks in the financial system. Should there be a steeper-than-intended pullback in credit, investment spending and hence growth in China could slow down more sharply than expected, the ministry noted.

"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.