Growth forecast moved up after strong first quarter

The broadening of the growth engines from manufacturing and outward-oriented services to domestically oriented service sectors like retail and food services also bodes well for GDP growth prospects for the rest of this year, said OCBC Bank.
The broadening of the growth engines from manufacturing and outward-oriented services to domestically oriented service sectors like retail and food services also bodes well for GDP growth prospects for the rest of this year, said OCBC Bank.ST PHOTO: DESMOND WEE

Economy now tipped to grow by 2.5% to 3.5% this year; both manufacturing and services help drive expansion

Singapore's economy is tipped to grow at between 2.5 per cent and 3.5 per cent this year, compared with an earlier estimate of 1.5 per cent to 3.5 per cent, in what market observers said was a rare revision so early in the year.

MTI had said earlier that growth was set to be "slightly above the middle" of its previous forecast range of 1.5 per cent to 3.5 per cent.

The improved outlook came as the Ministry of Trade and Industry (MTI) announced that gross domestic product (GDP) rose 4.4 per cent in the first quarter of this year.

Although MTI had said earlier that growth was set to be "slightly above the middle" of the 1.5 per cent to 3.5 per cent range, market observers noted it was an optimistic sign that the forecast had been changed after the first quarter.

Growth in the first quarter was supported by both manufacturing and services. Although most research houses maintained their GDP estimate, Maybank Kim Eng raised its full-year growth forecast to 3.5 per cent, from 3.1 per cent previously, "to reflect the stronger services uplift and more modest manufacturing slowdown".

With services making up two-thirds of the economy, OCBC Bank noted that the broadening of the growth engines from manufacturing and outward-oriented services to domestically oriented service sectors like retail and food services also bodes well for GDP growth to be sustained for the rest of this year.

SIM Global Education senior lecturer Tan Khay Boon noted other positives such as a rise in value added per worker and a fall in unit labour costs.

With manufacturing expected to grow at a slower pace, UOB economist Francis Tan reckons GDP growth in the next three quarters could be lower than Q1's showing. "This is predicated on a slower manufacturing sector due to the expected easing in China's exports and investment growth," he added.

In coming up with its forecast, MTI noted that the global eco-nomy has remained on a steady expansionary path since the start of the year.

In February, MTI highlighted that the global growth outlook for 2018 had improved slightly. "Since then, the growth outlook of some of Singapore's key final demand markets has improved further, with the IMF (International Monetary Fund) upgrading its 2018 forecasts for the US and euro zone," MTI Permanent Secretary Loh Khum Yean said at a briefing yesterday.

But the risk of escalating global trade tensions has gone up.

And against a backdrop of rising global interest rates and tightening financial conditions, some economies with high debt levels, including those in the region, might be vulnerable. In such a situation, there could be a pull-back in investment and consumption growth in these economies, said Mr Loh.

He said MTI's full-year growth forecast takes into account "the robust performance of the Singapore economy in the first quarter and the slightly improved external demand outlook", barring the full materialisation of downside risks.

In response to media queries regarding the Malaysian elections, Mr Loh said MTI is "monitoring developments there very closely".

Mr Edward Robinson, assistant managing director and chief economist of the Monetary Authority of Singapore's economic policy group, noted that Malaysia is in a position of fairly strong cyclical growth.

As for US-China trade ties, Mr Loh said MTI will review its forecast as appropriate, as events develop.

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A version of this article appeared in the print edition of The Straits Times on May 25, 2018, with the headline 'Growth forecast moved up after strong first quarter'. Print Edition | Subscribe