Singapore's economy appears to be slowing down, growing less than it did in the previous quarter, with further headwinds expected in the second half of the year. However, it is still being propped up by a buoyant manufacturing sector.
The economy grew 3.9 per cent year on year in the second quarter - lower than the 4.5 per cent growth it had clocked in the first quarter - according to the latest Ministry of Trade and Industry (MTI) figures released yesterday.
The numbers also fell short of market expectations as economists had earlier forecast 4.1 per cent growth.
Against the backdrop of trade tensions, MTI has kept to its gross domestic product (GDP) growth forecast of 2.5 per cent to 3.5 per cent for this year. This follows last year's expansion of 3.6 per cent.
But growth is expected to slow in the second half of the year, said MTI, which noted that downside risks and uncertainties have increased in the global economy.
"There is a risk of a further escalation of the ongoing trade conflicts that could lead to a vicious cycle of tit-for-tat measures between the United States and other major economies," said MTI Permanent Secretary Loh Khum Yean. "Should this happen, there could be a sharp fall in global business and consumer confidence and, in turn, investment and consumption spending."
Another issue is that global financial conditions are generally tightening, according to MTI.
The electronics sector is peaking and liquidity conditions are tighter, said DBS senior economist Irvin Seah. Despite the more challenging external outlook, he said, second-quarter growth remained "well-supported by the manufacturing sector's buoyant showing and service sector's resilience".
Manufacturing grew 10.2 per cent year on year in the second quarter, extending the 10.8 per cent growth in the previous quarter.
However, the service sector grew 2.8 per cent, compared with 4 per cent in the first three months. Noting this, Maybank Kim Eng economist Chua Hak Bin said that "the economy is losing steam".
He added that recently introduced property cooling measures will likely worsen contributions from real estate services as well, following a slowdown of the business services sector - which captures real estate property transactions.
Asked about the impact of such measures, MTI economics division director Yong Yik Wei stressed that while there will be an impact on the real estate sector, it constitutes only about 4 per cent of Singapore's GDP. She added that the Republic's economy is diversified and should be able to withstand the measures.
The construction industry saw a lacklustre showing in the second quarter as well, contracting 4.6 per cent year on year. Ms Yong noted that it should bottom out and that the sector is supported by a rise in contracts awarded, mainly from the public sector.
Outward-oriented sectors are expected to continue supporting Singapore's growth, with the manufacturing sector likely to continue expanding, but at a more subdued level.
Companies said they are already seeing the effects of trade tensions, with Mr Erman Tan of Asia Polyurethane Manufacturing noting stronger competition from Chinese companies in South-east Asia, given their difficulties exporting to the US. Business in China has slowed as well, as his customers who re-export to the US are showing less demand for goods.
"However, some products that we buy from China are now cheaper due to the depreciation of the renminbi," he said.
"We could buy cheaper goods and be more competitive when re-exporting. It depends on how quickly we adapt to change."