The economy recorded its slowest quarter of growth in nearly a decade on the back of an anaemic manufacturing sector beset by global trade tensions and an electronics slump.
Growth clocked in at just 1.2 per cent for the three months to March 31, prompting the Ministry of Trade and Industry (MTI) to downgrade its full-year estimate.
Also, in a nod to plunging exports, the projections for full-year non-oil domestic exports (Nodx) were marked down to zero growth at best.
The economy's showing was the smallest year-on-year growth for any quarter since the second quarter of 2009, when the global financial crisis drove expansion down to shrink 1.2 per cent.
The MTI said yesterday that it has narrowed its full-year growth forecast to between 1.5 per cent and 2.5 per cent, down from 1.5 per cent to 3.5 per cent.
Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye said growth in the first quarter came in lower due to the worse-than-expected performance of trade-oriented services, which were hit by slowing global demand and disruptions from the US-China trade war. "The US is toughening its stance on Huawei with the use of export controls, which could intensify the disruption to the tech supply chain."
Permanent Secretary for Trade and Industry Gabriel Lim said that if an escalation in the US-China trade conflict triggers "a sharp fall in global business and consumer confidence, investments and consumption could decline, thereby adversely affecting global growth". A bigger cause for concern is how US-China tensions affect confidence globally, and the uncertainty hanging over the global economy.
Citi economists Kit Wei Zheng and Ang Kai Wei said in a report: "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."
The uncertainties due to Brexit were also flagged by MTI, which added that the global growth outlook for 2019 has weakened further since its last survey in February.
Against this backdrop, Enterprise Singapore revised the full-year projected performance of Nodx from 0 per cent to 2 per cent growth to between minus 2 per cent and 0 per cent. It fell 6.4 per cent in the first quarter from the same period last year.
Manufacturing is likely to see a sharp slowdown after two years of robust expansion, with electronics and precision engineering hit hard, said MTI. But there are more positive signs in the information and communications sector, construction, education, health and social services. Finance and insurance, as well as business services, contributed most to first-quarter growth.
The construction sector grew 2.9 per cent after 10 consecutive quarters of contraction, while manufacturing shrank 0.5 per cent.
But MTI's report also included a downgrade to 2018 figures, which economists say will affect their full-year forecast. Quarter-on-quarter growth for the fourth quarter of 2018 was revised down from a growth of 1.4 per cent to a contraction of 0.8 per cent - a 2.2 percentage point reversal.
"One can argue that the bounce-back in the first quarter of 2019 (rising 3.8 per cent from the previous) is nothing more than just a technical payback," said DBS senior economist Irvin Seah. "The trajectory for our full-year 2019 growth forecast has now been lowered significantly."
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said an unexpected drag came from services, which saw first-quarter growth pared to 1.5 per cent from 2.1 per cent in earlier estimates. Services are the bulwark of the economy as far as jobs are concerned, and it remains to be seen if the slowdown is temporary.