SINGAPORE - Singapore's economic growth is unlikely to hit 3.3 per cent till 2018, said the Institute of Chartered Accountants in England and Wales (ICAEW) in a report released on Monday (March 14).
The professional body with over 145,000 members worldwide said that Singapore's domestic non-oil exports are expected to remain subdued over the coming year, leaving the economy reliant on the service sector, according to its latest Economic Insight: South East Asia report.
Stronger government investment and solid spending by households are expected to support service sector activity but services related to oil and re-exports will be vulnerable to continued weakness in regional trade, it said.
The Singapore economy grew 2 per cent last year, slowing from 2.9 per cent in 2014. This is the weakest annual growth since 2009, when the economy was hit by the global financial crisis and shrank 0.6 per cent. The Government is expecting growth this year to come in between 1 and 3 per cent, though private economists' forecasts are mostly below 2 per cent. DBS last week cut its GDP growth projection to 1.5 per cent from 2.1 per cent previously.
In its report, ICAEW said Singapore's pace of consumer spending has slowed compared to its long-term average, echoing the trend towards slower growth across the Asean-6 economies. This suggests that while financial crisis conditions are not present, the high debt-to-income ratios of close to 150 per cent in Singapore may already be hampering the country's growth potential, it said.
"As Asean and global economies continue to struggle with the challenging backdrop, it is natural to question to what extent the rise of China and the commodity super-cycle were mistaken for structurally robust growth in some countries," said Mr Tom Rogers, ICAEW economic adviser and associate director, Oxford Economics.
In Asean, Singapore and Malaysia will be most vulnerable to weaknesses in China's economy due to their place in the regional supply chains for electronic goods, said the report. The declining demand and prices for commodities will also be a cause for concern. China is the largest trading partner for Singapore, Malaysia and Thailand
"The best performers in the Asean-6 will be economies where growth is underpinned by strong domestic fundamentals and where there is room for policy support," he added. "In this respect, we believe that Indonesia, the Philippines, and Vietnam have the best growth prospects among the Asean-6 countries, reflecting healthy domestic factors such as low debt, macro-stability and wage competitiveness. These factors will help them continue to gain market share in low-cost industries."
Indonesia, the Philippines and Vietnam are less exposed to manufacturing sectors where China has excess capacity, while their wage competitiveness also means that developments in China should not significantly constrain their continued industrialisation, said the ICAEW.
"As Asean countries continue to reform their economies and experience moderate growth in the next few years, there will still be periods of financial market volatility as they adjust to China's new growth trajectory," said Mr Mark Billington FCA, ICAEW regional director for South-east Asia.
"A deeper-than-expected slowdown in China will be the key threat to Asean economies, along with more acute financial market volatility and a tightening of financial conditions as industrialised countries normalise monetary policy. This will be particularly painful for countries with high debt levels."
Correction note: A previous version of this article stated that ICAEW had over 125,000 members worldwide. It has more than 145,000 members. We are sorry for the error.