Full-year GDP growth likely at lower range of 3% to 5%: MTI

The shock waves from Russia's invasion of Ukraine and China's Covid-zero policy will hit Singapore and likely hurt its growth prospects in the months ahead.

The growth momentum is expected to ease and the recovery from the pandemic-induced slowdown may stall, after the first quarter Economic Survey released yesterday showed the key manufacturing sector in red on a quarterly basis for the first time in a year.

Taking stock of the disruption of supplies and the spike in food and energy prices brought on by the war in Ukraine and strict lockdowns in China, the Ministry of Trade and Industry (MTI) lowered its guidance on full-year gross domestic product (GDP) growth.

MTI maintained its six-month-old forecast of 3 per cent to 5 per cent GDP expansion for 2022, but Mr Gabriel Lim, Permanent Secretary for Trade and Industry, said growth will likely come in at the lower half of the forecast range.

In a briefing yesterday, he said: “You don’t need to be a mathematician - that’s between 3 per cent to 4 per cent.” GDP growth was at 7.6 per cent last year.

"Global supply disruptions are projected to be more severe and prolonged than earlier expected, potentially persisting throughout this year. This, in turn, is likely to constrain production and dampen GDP growth," he said.

The official guidance spelt out yesterday validates the stance of economists who had cut their full-year estimates soon after oil prices started to surge and China's lockdowns spread across the country's major industrial and logistic hubs.

DBS Bank senior economist Irvin Seah, who expects 2022 growth to come in at 3.5 per cent, said domestic demand from within China has softened while supply chains in the region have been severely disrupted.

"This will have profound implications on the prospects of Singapore's manufacturing sector, which thus far has been the main engine of the recovery," said Mr Seah, who expects the drag on local manufacturing growth to last for another couple of quarters.

The data in the Economic Survey confirms that the squeeze is already under way.

Year-on-year GDP growth in the first quarter came in at 3.7 per cent, moderating from the 6.1 per cent in the last three months of 2021. This was in line with what a Bloomberg poll of economists had flagged.

But seasonally adjusted quarter-on-quarter GDP growth slowed to 0.7 per cent, below the 0.8 per cent expansion the poll had predicted.

A major reason for the slowdown was that the manufacturing sector shrank 0.2 per cent quarter on quarter - a significant slide from the 13.2 per cent growth it had achieved in the previous quarter.

MTI is still upbeat on the electronics cluster, amid hopes of robust global demand for semiconductors from the 5G and auto markets, as well as cloud services and data centres.

However, it cautioned that some clusters such as chemicals may be weighed down by China's slowdown, as China is a key market for petroleum and chemicals products from Singapore.

MTI was also hopeful that the easing of pandemic-related domestic and border restrictions in Singapore and most of Asia will boost local retail and travel businesses, and alleviate labour shortages in the construction sector.

However, Dr Chua Hak Bin, senior economist at Maybank Research, said he would maintain his 2022 GDP growth forecast at 2.8 per cent, which is below the lower bound of MTI's forecast range.

"We think global headwinds will overwhelm and dampen the reopening tailwind, and undercut growth by the second half of the year," he said.