Service sector to be bigger driver of economy this year: Survey

Economists polled by MAS also cite trade protectionism as biggest threat

The service sector is set to become a stronger economic growth engine this year, according to a new survey of private sector economists.

The finance and insurance sector, for instance, is tipped to expand 7 per cent, according to economists surveyed by the Monetary Authority of Singapore (MAS), up from 4.4 per cent in a previous poll.

Meanwhile, growth in the accommodation and food service sector is now expected to come in at 2.2 per cent, up from 1.9 per cent previously.

Manufacturing is expected to expand a robust 5.3 per cent this year, also higher than previous estimates of 4.3 per cent. This stronger forecast comes despite warnings from some economists that the sector, which makes up a fifth of the economy, could moderate this year after growing at breakneck speed last year on the back of surging export demand for electronics and precision engineering products.

"The service uplift is coming in stronger than expected, with financial services leading the charge," said Maybank Kim Eng economist Chua Hak Bin.

"The tapering of manufacturing growth is more gradual than expected. Electronics production is proving remarkably resilient, even as exports contract and global smartphone sales slow."

Other sectors are doing less well.

The outlook for the construction sector has taken a turn for the worse, going by the latest survey, with respondents tipping a contraction of 2.1 per cent. The previous survey released in March flagged 1 per cent growth in the sector.

The outlook for private consumption growth has also eased: Economists in the latest poll expect a rise of 2.2 per cent, compared with 3.1 per cent in the previous quarter's survey.

Respondents flagged trade protectionism as the biggest threat to Singapore's economy, with 84 per cent citing it as a significant risk.

This was down slightly from 88 per cent in March's survey, but still much higher than the 40 per cent in December's poll.

Meanwhile, concerns about a slowdown in China appear to have eased, with 21 per cent of respondents flagging it as a key risk, down from 53 per cent previously.

Another risk could be faster-than-expected interest rate increases.

Private sector economists pointed to the impact of rising rates - in particular, tightening global financial conditions if the United States Federal Reserve raises rates more quickly than expected.

This risk was cited by 47 per cent of respondents, up from 17 per cent in the last survey in March.

The US central bank raised rates in March and is expected to do so again at its two-day meeting which began on Tuesday.

The rate hikes highlight the Fed's growing confidence that tax cuts and government spending will boost the US economy and lift inflation. Rates were raised three times last year.

CIMB Private Bank economist Song Seng Wun said market watchers are getting nervous as the pace of rate increases picks up. They fear higher US interest rates will result in capital flows out of emerging markets while raising borrowing costs and debt refinancing risks.

"Singapore could get caught up in these vulnerabilities," he added.

The latest MAS survey reflects the views of 24 analysts who monitor the Singapore economy. It was sent out on May 24.

A version of this article appeared in the print edition of The Straits Times on June 14, 2018, with the headline 'Service sector to be bigger driver of economy this year: Survey'. Print Edition | Subscribe