Singapore narrows 2016 GDP forecast amid lacklustre growth

SINGAPORE: The growth forecast for Singapore’s economy in 2016 has been narrowed to between 1 and 2 per cent, down from the initial range of between 1 and 3 per cent, the Ministry of Trade and Industry (MTI) said on Thursday (Aug 11).

The move to lower the upper limit of the 2016 GDP forecast took into account a slightly weakened global economy on the back of Britain's vote to exit the EU in June, which has "dampened and also added uncertainties" to global growth outlook, said Mr Loh Khum Yean, Permanent Secretary of MTI, at a media briefing.

As such, most key economies, with the exception of the US, are expected to see similar or lower growth in the final six months of the year, compared to the first half.

Mr Loh also raised the risk of a spike in debt defaults in China amid an ongoing economic restructuring, which could lead to a tightening of financial conditions. "If this materialised, the Chinese economy could slow down more sharply than expected," he said, adding that China's GDP growth is projected to be lower than 2015's 6.9 per cent.

Against this backdrop, the growth outlook for Singapore has weakened slightly since the economic review three months ago, Mr Loh said.

Citing a lacklustre global outlook as a key factor weighing on growth, the Monetary Authority of Singapore (MAS) said last month that the official growth forecast for 2016 was under review. Analysts that Channel NewsAsia spoke to had estimated the growth forecast to be tightened to about 1.5 to 2.5 per cent.

OCBC Bank’s Head of Treasury Research & Strategy Selena Ling noted that the official growth forecast revision was slightly more bearish than she had thought given that second-half growth would have to “potentially slip to zero for the full year to hit the lower 1 per cent floor of the revised official forecast range”.

She added: “We maintain our 2016 GDP growth forecast at 1.8 per cent year-on-year for now as we think the second-half slowdown could be limited to around 1.5 per cent year-on-year from first half’s 2.1 per cent, even though there may be some downside risks for third quarter growth given the brunt of Brexit could be felt in the financial markets, (as well as) business and consumer confidence.”

Q2 REPORT CARD: ECONOMY LOGS 2.1% GROWTH

The MTI on Thursday also released gross domestic product (GDP) figures for the second quarter, which saw Singapore’s economy expanding 2.1 per cent compared to the same period a year ago.

This is marginally lower than the Government’s advance estimate of 2.2 per cent released on Jul 14 and unchanged from the previous quarter.

On a quarter-on-quarter, seasonally-adjusted annualised basis, GDP for the April to June period grew 0.3 per cent, also below the advance reading of 0.8 per cent but a slight improvement from the anaemic 0.1 per cent expansion in the previous three months, where services sector activity shrank and global demand remained tepid.

The latest growth figures fell below analysts' forecasts, with 13 economists surveyed by Reuters predicting a 2.2 per cent year-on-year growth and a 0.8 per cent growth on a quarterly basis.

Breakdowns by sector showed that manufacturing activity expanded by 1.1 per cent year-on-year, reversing from a 0.5 per cent decline in the previous quarter, propped up by the electronics and biomedical manufacturing clusters.

The construction sector grew 3.3 per cent, slowing from a 4 per cent growth over the January to March period, on the back of a decline in private sector construction works.

The wholesale & retail trade sector posted growth of 2.2 per cent year-on-year, pulling back slightly from gains of 2.9 per cent in the prior quarter. According to the MTI’s release, growth was driven by both the wholesale trade and retail trade segments, with the latter bolstered by motor vehicle sales.

Also slowing down from growth in the earlier quarter, the finance and insurance sector saw an expansion of 0.8 per cent year-on-year in the second quarter, underpinned largely by the forex trading and insurance segments. However, the second-quarter figure was a marked slowdown from the 2.7 per cent growth in the first three months of 2016.

In a note released on Thursday, DBS Group Research highlighted the “sub-par performance” of this sector as a key concern. In particular, analysts pointed out that the sector has shrunk for two straight quarters and “is technically now in recession”, according to quarter-on-quarter seasonally-adjusted annualised figures which showed a second-quarter contraction of 11.2 per cent following the 14.2 per cent decline in the preceding quarter.

Meanwhile, the business services sector recorded a slight contraction of 0.2 per cent on a year-on-year basis as the real estate segment put up a weaker performance. This is compared to the 0.1 per cent growth in the first quarter.

“Overall, such subdued growth momentum underscores the challenging exter¬nal environment that is currently weighing on growth. While the economy has averted a contraction yet again, there is nothing to cheer about. Companies and consumers will remain cautious,” DBS analysts wrote in the note, while adding that the bank’s full-year growth forecast for 2016 remains at 1.5 per cent.

Earlier this year, the central bank unexpectedly eased monetary policy in a move to stoke growth momentum. However, monthly economic indicators thus far have continued to show signs of weakness in the Singapore economy, with manufacturing output shrinking 0.3 per cent in June over the same month a year ago.

Latest export figures showed flat growth in the second quarter on a year-on-year basis, reflecting a gloomy outlook clouded by concerns over stubbornly weak global demand and fresh uncertainties such as Brexit.

Given the sluggish momentum over the first six months of 2016, Mr Benjamin Shatil, an economist at JP Morgan, said there is “little scope of a pick-up” in growth over the coming quarters. He also warned of the possibility of “even weaker growth” if services activity and exports continue to decelerate.

“The fact that GDP growth was virtually flat through the quarter despite particularly firm government spending as well as a 14.0 per cent quarter-on-quarter seasonally adjusted pop in exports suggests broader underlying weakness,” Mr Shatil said in a Aug 11 note.

“In this context, we are revising third quarter GDP to a moderate 1.0 per cent quarter-on-quarter contraction, with a small expansion now expected in the fourth quarter. This would leave full-year 2016 GDP at 1.4 per cent on-year, down from 1.5 per cent in the prior forecast,” he added.

BANKS' EXPOSURE TO OIL AND GAS SECTOR

Regarding the recent flare up in concerns over the exposure of local banks' to the oil and gas sector, MAS Deputy Managing Director Jacqueline Loh said the spillover to the financial sector will likely be "contained", given the banks' relatively limited exposure to the struggling sector.

Speaking at the media briefing on Thursday, she added that the banks' oil and gas exposure comprised less than 6 per cent of total loans, and that concerns over asset quality are mitigated due to the “robust capital buffers and prudent provision practices” taken on by local lenders.

When asked if the MAS would consider further easing its monetary policy given sluggish growth in the domestic economy, Ms Loh reiterated the central bank's stance that current monetary policy settings remain "appropriate for overall macro economic conditions in 2016" and that the narrowed growth forecast falls within the parameters of the central bank's policy decision in April.

Source: Channel News Asia 2016

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