BUSINESSES are in for stormy times this year as dark clouds loom over Singapore’s economic prospects, with the Ministry of Trade and Industry (MTI) downgrading its full-year growth forecast to 1.5 to 2.5 per cent after the results of just one quarter, from an earlier 1.5 to 3.5 per cent.
This confirmed what many companies predicted earlier, with many hit by uncertainties from the US-China trade war, a slowdown in China, and the fading of the global tech electronics cycle.
Economists noted that the MTI is striking a more downbeat tone in its outlook, flagging the external environment as “challenging” and expecting a “sharp slowdown” in the manufacturing sector.
This comes as the Singapore economy saw growth of 1.2 per cent in the first quarter of 2019 – the lowest growth rate in almost 10 years. This was a notch lower than earlier estimates of 1.3 per cent and down from the previous quarter’s results, which were revised downwards from 1.9 per cent to 1.3 per cent. Q1’s GDP growth also came in below economist expectations of 1.5 per cent.
Manufacturing, which makes up one-fifth of the economy, was the main drag as it slid by 0.5 per cent, contracting for the first time in almost three years, pulled down by the electronics and precision engineering segments. This is a reversal from the 4.6 per cent growth in Q4 2018.
On the flipside, construction finally saw a recovery after three years of decline as it expanded by 2.9 per cent, compared to a 1.2 per cent decline in Q4 2018. This is thanks to an improvement in both public and private sector construction activities.
The services producing industries, which make up the bulk of the economy, remained steady with a growth of 1.5 per cent, unchanged from the previous quarter. The sector was propped up by information and communications, finance & insurance, and business services.
The MTI noted that the global growth outlook has weakened further since February, even as it “remains clouded by uncertainties and downside risks”. This includes an escalation of trade tensions between the US and its key trading partners especially China, slower-than-expected growth in the Chinese economy, and uncertainties arising from Brexit.
MTI permanent secretary Gabriel Lim noted that the direct impact of the trade tensions on the Singapore economy has been “modest” so far, but echoed past sentiment from government officials that their bigger worry is how it will affect business investments and consumer confidence.
He added that the revised growth forecast takes into account the broader picture, and “goes beyond any single company or issue” – in direct reference to latest developments involving Chinese tech firm Huawei.
The US on Monday issued a 90-day reprieve on a ban on American companies selling or transferring US technology to Huawei which was announced last week. This threatens further disruptions to the tech supply chain, which is already under pressure from the trade war.
Economists are not holding their breath that the economy will significantly pick up over the next few quarters, even though favourable base effects in the second half of the year suggest the numbers should improve.
The trade war continues to be at the heart of the entire situation, as Singapore remains a small, open and trade-dependent economy, they added. In particular, the increasing likelihood of a “tech war” by the US and China could worsen the pain felt by manufacturers.
DBS economist Irvin Seah said: “Uncertainties have spread to some of the key tech giants, which will likely impact global electronics demand.
“Indeed, it is not a promising sign when the two biggest economies in the world are trying to test the ‘pain tolerance’ of each other.”
In a note by Maybank Kim Eng, economists Chua Hak Bin and Lee Ju Ye wrote: “The US is toughening its stance on Huawei with the use of export controls, which could intensify the disruption to the tech supply chain.”
Retaliation by China could result in the US imposing tariffs on the remaining US$325 billion worth of Chinese imports, which includes a high proportion of consumer electronics, they said.
Manufacturing slump aside, Dr Chua and Ms Lee are also projecting that the weakness in external-oriented sectors such as wholesale trade and transportation & storage could broaden to domestic sectors such as retail sales and the property market.
But, MTI said, there are still some bright spots in the economy: the information & communications sector, and the education, health & social services segment. Construction is also set to see a “sustained turnaround”, it added.
Still, several economists slashed their full-year growth forecasts, citing the slim chance of a trade recovery this year.
UOB downgraded its full-year growth outlook to 2 per cent from 2.5 per cent; Nomura revised its forecast to 2 per cent from 2.5 per cent; and DBS lowered it to 2.1 per cent from 2.6 per cent.
Maybank Kim Eng maintained its growth forecast at 1.8 per cent for 2019, but noted that this could be cut even further in the event of a full-blown trade war.
Separately, the release of the first quarter economic growth figures followed a recent benchmarking exercise by the Singapore Department of Statistics (Singstat), which saw the adoption of a chain-linking approach to re-weight real GDP annually.
This is in line with international recommendations, and “better reflects prevailing economic conditions” compared to the previous five-yearly fixed base method, said Singstat.