Full-year growth forecast for Singapore economy raised to 2.5-3.5% as outlook improves

MTI had previously expected Singapore's 2018 growth to come in slightly above the middle of a forecast range of 1.5 per cent to 3.5 per cent. PHOTO: ST FILE

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

The improved outlook came as the Ministry of Trade and Industry (MTI) announced on Thursday (May 25) that Singapore's gross domestic product (GDP) rose 4.4 per cent in the first quarter this year, even better than the 4.3 per cent advance estimate announced earlier.

Growth was supported by both, manufacturing and services.

The positive outlook prompted upgrades among some of the research houses. Maybank KE economists Chua Hak Bin and Lee Ju Ye raised their 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 sustain for the rest of 2018.

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, the MTI noted that the global economy has remained on a steady expansionary path since the start of the year.

In February, the 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 Eurozone," said MTI permanent secretary Loh Khum Yean 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. If this occurs, there could be a pull-back in investment and consumption growth in these economies, said Mr Loh.

He said the 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, Mr Loh said MTI is "monitoring developments there very closely".

Edward Robinson, assistant managing director and chief economist of the Monetary Authority of Singapore's (MAS) economic policy group, noted that Malaysia is in a position of fairly strong cyclical growth, and that analysts think "Malaysia's medium-term prospects are intact".

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

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