Too early to tell if stronger economic growth is here to stay

SINGAPORE - The world economy - mired in a slowdown since the global financial crisis - finally seems to be on the upswing and this rising tide has helped buoy the outlook for small, trade-dependent Singapore.

But questions remain over whether this pick-up will persist and how strong it will be.

The Monetary Authority of Singapore's (MAS) Macroeconomic Review released on Thursday (April 27) noted that the Singapore economy has picked up in recent months but growth has been volatile and uneven.

Trade-related sectors have experienced a significant turnaround which started in the fourth quarter of 2016, underpinned by a rebound in manufacturing, the MAS noted.

Manufacturing, which makes up one-fifth of the economy, is benefiting from a more positive global outlook and strong demand for electronics, especially semiconductors.

Factory output logged another better-than-expected performance in March, jumping 10.2 per cent over the same month last year - stronger than economist expectations of a 5.8 per cent rise.

Firmer manufacturing activity, in turn, has had positive spillovers on trade-related services such as air and sea cargo handling.

But the growth pick-up in manufacturing has not been broad-based - segments like marine and offshore engineering are still suffering amid the lacklustre oil price outlook.

Other sectors outside manufacturing which rely largely on local demand also continue to struggle.

Retail and food services, in particular, will face both cyclical and structural challenges amid a soft labour market and subdued consumer confidence, as well as greater competitive pressures, the MAS report said.

Singapore is a small, trade-dependent economy. Ultimately, a stronger, more sustained global economic recovery is needed for the upswing in growth to broaden beyond manufacturing.

Last year, the world economy grew 3.1 per cent. The International Monetary Fund (IMF) now forecasts growth will be 3.5 per cent this year - up from its previous forecast of 3.4 per cent in January - and 3.6 per cent in 2018.

In its latest World Economic Outlook, the IMF said chronically weak advanced economies are expected to benefit from a cyclical recovery in global manufacturing and trade that started to gain momentum from mid-2016.

"The economic upswing that we have expected for some time seems to be materialising," IMF chief economist Maurice Obstfeld wrote in the report.

However, this pick-up comes after many years of tepid growth and could still be derailed by shocks. There are significant risks on the horizon, including a backlash against openness and trade in developed economies like the United States and Europe.

It is still too early to tell whether the global economy can sustain this improved momentum. If it does, Singapore's economy might be able to look forward to the end of a long winter.