S’pore’s growth outlook subdued in 2023 with no reprieve to decline in global goods trade

SINGAPORE – Falling global demand will slash the trading of goods ranging from electronics to clothes this year, warned the World Trade Organisation (WTO).

WTO economists Ralph Ossa and Coleman Nee have revised their forecast for world merchandise trade growth to 0.8 per cent for 2023, down from their estimate of 1.7 per cent made just six months ago. In comparison, global trading grew by 3 per cent year on year in 2022.

The trade slump sparked by high interest rates in the United States and Europe, supply chain aftershocks from the war in Ukraine and a weak China rebound has hit growth in Singapore’s manufacturing sector.

This comes at a time when inflation is projected to remain elevated, adding further pressure to the economy.

Mr Ossa noted at a briefing in Geneva on Thursday that there are also early signs of fragmentation and contraction in global supply chains, possibly stemming from rising geopolitical tensions.

He noted that the share of intermediate goods in world trade, which indicates the health and extent of global supply chains, fell to 48.5 per cent in the first half of this year, compared with an average of 51 per cent over the previous three years.

Data also shows that more companies are moving manufacturing activities to countries that have friendlier ties with their governments or those closer to home. While the evidence is still inconclusive, further fragmentation of global supply chains in this manner could change trade patterns and stall growth over the longer term.

For now, overall trade in a wide range of manufactured goods, including the electronics and chemicals that Singapore trades heavily in, is down 4 per cent year on year. Other manufactured goods like steel, textiles and clothing have also fallen, Mr Nee said on Thursday.

Singapore’s goods imports were down 9.7 per cent year on year in the first half, while exports fell by nearly 7 per cent over the same period, he added.

Singapore’s heavy reliance on international trade means these drops were among the steepest declines in trade compared with larger developed economies like the United States, Europe, Japan and South Korea, as well as emerging economies like China, WTO data showed.

The Singapore economy should expand by just 1.3 per cent this year, compared with 3.6 per cent in 2022 and 8.9 per cent in 2021, due to a sharp contraction in manufacturing arising from the fall in export demand, analysts at the Asean+3 Macroeconomic Research Office (Amro) noted on Thursday.

This compares with the Ministry of Trade and Industry’s forecast in August for gross domestic product (GDP) to grow by 0.5 per cent to 1.5 per cent, down from the 0.5 per cent to 2.5 per cent estimate made earlier this year.

“Growth is expected to be subdued on the back of weaker global growth prospects. The positive impact of tourism and domestic consumption on growth will likely be more than offset by a slumping manufacturing sector and lacklustre performance in trade-related services,” Amro said.

And while China’s reopening initially provided a much-needed boost to global demand, it is unlikely to be sufficient to offset the impact of tighter financial conditions in other major economies, which will weigh heavily on Singapore’s manufacturing exports, it said.

Elevated prices will pose further challenges to the local economy.

“A sharp rise in commodity prices remains as an external risk amid heightening geopolitical tensions and El Nino weather patterns, while car ownership fees, accommodation costs, wage pressure and the impact of GST hikes warrant monitoring on the domestic front,” Amro said.