Singapore cut its full-year growth forecast again yesterday, as the economy almost came to a standstill in the second quarter of the year, while the outlook for exports worsened considerably.
The Ministry of Trade and Industry (MTI) now expects GDP growth to come in between 0 per cent and 1 per cent, with the final figure pegged at around the mid-point of the range. This is sharply down from its previous forecast range of 1.5 per cent to 2.5 per cent, as the economy logged 0.1 per cent growth in the second quarter.
The downgrade comes amid escalating global trade tensions and weakness in the manufacturing sector, and MTI expects that Singapore will likely continue facing strong headwinds for the rest of the year.
But Trade and Industry Minister Chan Chun Sing said that while Singapore should brace itself for challenges ahead, it "need not be overly pessimistic". The country continues to attract good investments, and this reflects the confidence that investors have in its long-term value proposition, he added.
Permanent Secretary for Trade and Industry Gabriel Lim told a media briefing yesterday that the Republic faces a challenging backdrop involving a potentially steeper-than-expected slowdown of the Chinese economy and risk of a no-deal Brexit.
Risks may also arise from uncertainties in Hong Kong, the trade dispute between Japan and South Korea, as well as tensions in North Korea and the Strait of Hormuz, he added. "In particular, the electronics and precision engineering clusters will likely remain weak due to the sharp decline in global semiconductor demand," said Mr Lim.
But he stressed that there remain areas of strength, such as the aerospace and food and beverage manufacturing segments, as well as the information and communications, and finance and insurance sectors.
Analysts said the downgrade in the economic forecast was gloomy but realistic given Singapore's sensitivity to global trade flows.
"The lower-than-expected shift in the official forecast reflects the potential downside risk to growth, given the possibility of further trade actions from US President Donald Trump," said DBS senior economist Irvin Seah, referring to Washington's recent threat of additional 10 per cent tariffs on its remaining US$300 billion (S$416 billion) of Chinese imports.
The new tariffs were supposed to kick in on Sept 1, but the Trump administration said yesterday that it had decided to delay impo-sing some of them.
But economists remained divided on the potential of a technical recession - or two consecutive quarters of decline in economic output - in the coming months.
On a quarter-on-quarter basis, the economy shrank 3.3 per cent, marking a reversal from its 3.8 per cent quarter-on-quarter growth in the first three months of the year.
Maybank Kim Eng economist Chua Hak Bin fears the figures may fall further, while Mr Seah said that numbers could be bumped up given that traders and importers typically frontload orders before new tariffs come into play.
Among the drags on the economy in the second quarter was manufacturing, which shrank 3.1 per cent from the previous year.
Yesterday, Enterprise Singapore also slashed its full-year projection for non-oil domestic exports to between -9 per cent and -8 per cent for the year, down from -2 per cent to 0 per cent. These exports shrank 14.6 per cent in the second quarter.
Although the deterioration in Singapore's data fuelled speculation that the Monetary Authority of Singapore would ease monetary policy - a move that could weaken the Singapore dollar and help exports - its chief economist Edward Robinson said yesterday that it is not moving outside its regular schedule to change monetary policy.