News analysis

Outlook for Singapore's economy still cloudy despite trade rally

The view of the PSA Tanjong Pagar Terminal on Sept 7, 2016. PHOTO: ST FILE

At the start of this year, economists were worried that a rising tendency towards protectionism would weigh on world trade and, by extension, crimp the growth of Singapore's small, trade-dependent economy.

These fears have since taken a back seat - thanks to robust trade data - but have been replaced by other worries.

For one thing, the trade rally - driven largely by strong electronics shipments - could taper off over the rest of the year.

In addition, sectors which rely largely on domestic demand mostly have not experienced a lift from the pickup in trade.

Singapore's non-oil domestic exports rose 8.5 per cent year on year last month - slightly below economists' expectations of a 9.1 per cent expansion. While sliding pharmaceutical exports weighed on the data, they were offset by robust electronics shipments, which have been benefiting from surging global demand for semiconductors and related equipment.

The data cheered some economists, who saw it as a sign that a trade-driven recovery is taking hold.

"Exports and trade continue to drive the growth recovery, with early signs that the momentum is holding up well in the third quarter. Electronics exports and re-export trade appear to be strengthening, not waning," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye.

Barring further negative geopolitical surprises and uncertainties in the United States political space, "Singapore's growth outlook should continue to be underpinned by its rosy external environment", said OCBC Bank economist Barnabas Gan.

But others sounded a note of caution. United Overseas Bank economist Francis Tan expects non-oil domestic export growth to slow in this half of the year.

"This is especially since the current electronics cycle may be coming towards an end with the rolling out of the next wave of smartphones likely in the second half of 2017," he noted.

Slower growth in China - Singapore's largest trading partner - may also pose some risks, added Mr Tan.

In addition, while trade-related segments have boomed, other sectors have been doing less well, especially those dependent on local demand.

Citi economist Kit Wei Zheng pointed out that "the key uncertainty (going into the second half of the year) remains whether the export recovery spills over into domestic demand".

With growth still uneven and the economy far from firing on all cylinders, the ongoing trade-driven pickup in growth remains fragile.

A version of this article appeared in the print edition of The Straits Times on August 18, 2017, with the headline 'Outlook still cloudy despite trade rally'. Subscribe