SINGAPORE - Singapore's economic growth in the first quarter of the year came in lower than officially estimated at 1.2 per cent - the slowest quarter growth in nearly a decade - as manufacturing shrank amid global trade tensions and an electronics slowdown.
This was lower than both the Ministry of Trade and Industry's (MTI) flash figure of 1.3 per cent growth and the 1.4 per cent expansion tipped by analysts polled by Bloomberg. It is also the smallest annual expansion for any quarter since April-June 2009, when gross domestic product shrank 1.2 per cent from a year earlier.
In its Economic Survey of Singapore released on Tuesday (May 21), MTI also narrowed downwards its full-year growth forecast to 1.5 per cent to 2.5 per cent, from 1.5 per cent to 3.5 per cent, after "taking into account the performance of the Singapore economy in the first quarter, as well as the weaker external demand outlook".
Global growth outlook for 2019 has weakened further since the last survey in February, and remains “clouded by uncertainties and downside risks”, said MTI.
These factors include trade tensions between the United States and China, slower-than-expected growth in the Chinese economy and the delay in Brexit until Oct 31, resulting in prolonged economic uncertainty.
Citibank economists Kit Wei Zheng and Ang Kai Wei in a report said: “Although MTI’s revised forecasts still incorporate recovery in the second half of the year, a full-blown trade war would dampen or delay the recovery, likely bringing growth to the lower half of the revised range.”
On top of slowing growth in the first three months of 2019, economists noted there have been backward revisions to last year’s figures as well, with DBS senior economist Irvin Seah flagging a “sharp downward adjustment in the fourth quarter”.
In particular, he noted, quarter-on-quarter growth for the fourth quarter of 2018 has been revised to a 0.8 contraction, 2.2 percentage points lower than the 1.4 per cent reported previously.
“Just by that backward adjustment, it will lower my full-year forecast,” Mr Seah said, adding that such revisions are typically made earlier in the year.
On Singapore’s first quarter performance, Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said an “unexpected drag came from services”, which saw its first quarter growth pared down to 1.5 per cent from 2.1 per cent in earlier estimates.
The service sector, she said, is “the bulwark of the Singapore economy as far as jobs are concerned”, employing around two-thirds of the economy. Ms Ling added that it remains to be seen if the slowdown in services growth will be a temporary phenomenon or the start of a new trend.
“If services is going to crawl along at the range of 1 per cent or so, it’s quite hard to see how we are going to get to the higher end of the revised 2.5 per cent range,” said Ms Ling.
“With the recent trade actions announced by the US and China, there is a risk of a further escalation of the trade conflicts between the US and its key trading partners, especially China,” said Permanent Secretary for Trade and Industry Gabriel Lim at a media briefing on Tuesday.
“Should this happen and trigger a sharp fall in global business and consumer confidence, investments and consumption could decline, thereby adversely affecting global growth.”
However, when asked if the recent moves of tech giants and chip makers clamping down on Chinese company Huawei – in the latest developments in US-China tensions – will impact Singapore in the coming quarters, Mr Lim said the MTI’s outlook takes into account “a much broader suite of factors, beyond any single company or issue”.
“The bigger issue we’re worried about is how (US-China tensions affect) consumer confidence, business confidence, the uncertainty that will hang over the global economy... That’s something we’re keeping a very close watch on,” he said.
Growth expectations have weakened for both the US and the euro zone economy as well, and China’s economy is also expected to slow in 2019.
Against this backdrop, manufacturing “is likely to see a sharp slowdown in growth following two years of robust expansion”, especially in the electronics and precision engineering clusters, said MTI.
But it added that pockets of strength lie in prospects for the information and communications sector, construction, as well as the education, health and social services segment.
Leading growth in the first quarter was the information and communications sector, which expanded by 6.6 per cent year on year, faster than the 5.0 per cent growth in the previous quarter.
“Growth was driven by the IT and information services segment on account of firms’ robust demand for IT and digital solutions,” said MTI.
Meanwhile, the finance and insurance sector grew by 3.2 per cent and the construction sector grew by 2.9 per cent, a turnaround from the 1.2 per cent decline in the previous quarter and the first quarter of year-on-year growth after 10 consecutive quarters of contraction.
The “other services industries” grew at a faster pace of 2.2 per cent year on year, compared with the 0.3 per cent growth in the previous quarter as well, primarily driven by an expansion in the education, health and social services segment on the back of a continued ramp-up of operations in healthcare facilities.
However, the manufacturing sector contracted by 0.5 per cent year on year, a pullback from the 4.6 per cent growth in the previous quarter. This was due to output declines in precision engineering and electronics, in turn due to weak global semiconductor and semiconductor equipment demand.
Growth in the business services sector eased to 2.3 per cent year on year, the wholesale and retail trade sector shrank by 1.8 per cent, while transportation and storage saw growth of 0.8 per cent. The accommodation and food services sector grew by 1.8 per cent.