The Singapore economy is expected to grow at a more moderate pace this year after outperforming last year. But the brightening global outlook will benefit a broader swathe of sectors this year, in addition to trade-driven industries such as manufacturing, which have already received a boost.
The economy expanded 3.6 per cent last year - faster than initial estimates - thanks largely to strong growth in the manufacturing sector, which makes up a fifth of the economy. Growth this year is expected to slow slightly but remain firm, the Ministry of Trade and Industry (MTI) said yesterday.
The Singapore economy, which grew 2.4 per cent in 2016, picked up pace last year on the back of surging global demand for electronic gadgets. This trade-driven lift helped push 2017 economic growth above an earlier estimate of 3.5 per cent - which was already more than double initial forecasts.
Government forecasters are tipping growth of 1.5 per cent to 3.5 per cent this year. MTI expects growth to come in "slightly above the middle of the forecast range".
Singapore's external demand outlook is likely to be slightly weaker this year compared with last year as the country's key trading partners enter a more mature phase of recovery, MTI said. The manufacturing sector, which surged 10.1 per cent last year, is likely to continue growing at a brisk clip and supporting the rest of the economy, said MTI permanent secretary Loh Khum Yean.
The pick-up in economic activity is also broadening out to benefit more sectors, he said. Domestically oriented sectors such as retail and food services are expected to do better on the back of improving consumer sentiment, as the labour market recovery gains traction.
However, the construction sector, which shrank 8.4 per cent last year, is likely to remain lacklustre.
While risks to Singapore's economy have receded since last year, MTI said some remain, including concerns over protectionist sentiment and trade policies, especially in the United States, and higher than expected inflation, which could prompt the US central bank to raise interest rates more quickly.
DBS senior economist Irvin Seah said it is encouraging that Singapore's growth prospects have become more "balanced, with healthy expansion in the manufacturing and services sectors".
Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect economic growth to cool off to 2.8 per cent this year and 2.5 per cent in 2019. "Growth is broadening more firmly to domestically oriented services, which will help offset moderating manufacturing growth. Externally oriented services should post healthy, but slower growth," they noted.
OCBC economist Selena Ling said Singapore's stronger growth outlook, coupled with a potential hike in the goods and services tax that might be announced in Budget 2018, could push up inflation.
This could, in turn, prompt the central bank to move to strengthen the Singapore currency sooner rather than later, Ms Ling noted.
The Monetary Authority of Singapore's Singdollar policy band is now on a path of zero appreciation against the currencies of key trading partners - a neutral stance put in place in April 2016 amid slow growth and low inflation.