Singapore's economic outlook continues to be clouded by global uncertainty for the next few quarters, and it will have to turn to domestic drivers for growth this year, said the Monetary Authority of Singapore (MAS) yesterday.
"This will be led by the ongoing expansion in services arising from the digital transformation of the economy and the recovery of the construction sector," the central bank added in its twice-yearly macroeconomic review.
MAS expects full-year growth for Singapore to come in slightly below the mid-point of the 1.5 per cent-to-3.5 per cent forecast range in 2019.
As slower growth for Singapore's key trading partners continues to weigh on the economy, the contribution from trade-related sectors, which form the largest cluster, is expected to recede.
Instead, modern services - which include firms providing professional, financial and technology services such as cyber security and banking and account for around 30 per cent of the economy - will be the key driver of growth, said MAS.
Domestic-oriented sectors such as construction and consumer-facing services are also expected to stay on a recovery path. This cluster makes up about 16 per cent of the economy.
While analysts are looking to a trade deal between the United States and China next month or in June, expecting some economic recovery in the second half of this year, Maybank Kim Eng economist Chua Hak Bin cautioned that the rebound may remain weak. "Even if there is a trade deal, we know it's going to be an ongoing review and I suspect a lot of businesses will still tread very carefully," he added.
ING chief economist Robert Carnell said that while digital activities are a fast-growing part of Singapore's economy, it will take time before this offsets some of the slowdowns seen in other parts, such as electronics and manufacturing.
"I'm not sure it is a complete airbag when the economy is hitting the skids in other areas," he added.
Singapore has seen a step-down in growth in the fourth quarter of last year and first quarter of this year, mainly driven by weakness in the trade-related cluster, alongside a downswing in the global electronics cycle.
The slowdown was most evident in manufacturing, which contracted in the first three months of this year, marking its first quarterly decline in three years. Pockets of weakness also emerged in the modern services cluster.
Financial intermediation, which can involve bank loans, has been bogged down by the slowing Chinese economy, while heightened uncertainty in the external environment has "cast a pall over sentiment-sensitive segments like security dealing and fund management", said MAS.
But there are signs of recovery in the domestic-oriented cluster here, with the construction sector expanding for the first time in 10 quarters. This push is expected to continue for the rest of the year, given a recovery in contracts awarded since the second half of 2017.
Meanwhile, among modern services, digital-related activities comprising IT and information, and payment services should see growth.
"Activities of payment services players should continue to pick up as Singapore progresses towards a more cashless society," said MAS.
Information and communications technology, as well as business services, will benefit from the push towards a Smart Nation.
MAS also said the productivity gap between sectors more exposed to foreign demand and those mainly serving domestic ones can be narrowed, such as by raising the exportability of goods or services in sectors focused on domestic demands.
Outside of Singapore, MAS expects the global economy to expand at a slower pace this year.
While trade tensions continue to pose uncertainties, an analysis it did of supply-chain shifts, in part due to US-China tariffs, suggests that as investment is redirected from China to the rest of the region, economies in Asia will see a gain in real income.