Singapore narrows 2022 GDP growth forecast to 3-4% amid further deterioration in global economic outlook

SINGAPORE: Singapore has trimmed its growth forecast for 2022, as the global economic environment weakens further amid challenges such as inflation and persistent supply chain disruptions.

The Ministry of Trade and Industry (MTI) said on Thursday (Aug 11) that the country’s gross domestic product (GDP) for this year is now expected to come in between 3 and 4 per cent, narrowing from the previous 3 to 5 per cent range.

Policymakers had warned in May that growth would likely come in at the lower half of the 3 to 5 per cent forecast range for this year.

MTI said the global economic environment has “deteriorated further” since its last assessment in May.

Stronger than-expected inflationary pressures and aggressive monetary policy tightening by central banks are set to weigh on growth in major advanced economies, such as the United States and Eurozone.

China continues to grapple with a deepening property market downturn and recurring domestic COVID-19 outbreaks; and supply chain disruptions are likely to persist for the rest of the year given how factors such as the Russia-Ukraine conflict and China’s zero-COVID policy remain.

“The external demand outlook for the Singapore economy has weakened compared to three months ago,” MTI said in its report.

Meanwhile, downside risks in the global economy remain “significant”.

These include the possibility of further escalations in the Ukraine war, disorderly market adjustments to monetary policy tightening in advanced economies, an escalation in regional geopolitical tensions and the trajectory of the COVID‐19 pandemic.

This means that the outlook for some outward-oriented sectors in Singapore has dimmed, said MTI.

For instance, the growth prospects of Singapore’s chemicals cluster and the fuels and chemicals segment of the wholesale trade sector have been adversely affected by the weakening economic outlook in China, which is a key market for petroleum and chemicals products from Singapore. 

Growth in the water transport and finance and insurance sectors is also expected to be dampened by the projected slowdown in major external economies.

On the other hand, Singapore has transited to living with COVID-19 with the progressive removal of nearly all domestic and border restrictions. This has in turn supported the recovery of some segments of the economy, such as aviation- and tourism-related sectors.

SLOWER-THAN-EXPECTED GROWTH IN Q2

MTI’s report on Thursday also showed that the economy expanded 4.4 per cent on a year-on-year basis in the second quarter, slower than the Government’s advance estimate of 4.8 per cent but faster than the 3.8 per cent growth recorded in the first quarter.

Growth was mainly supported by the manufacturing, other services and information and communications sectors.

Taking into account Singapore’s GDP performance in the first quarter, the economy expanded by 4.1 per cent on a year-on-year basis in the first half of the year, said MTI permanent secretary Gabriel Lim at a press conference.

On a quarter-on-quarter seasonally adjusted basis, second-quarter GDP contracted slightly by 0.2 per cent, below the initial estimates of 0.9 per cent growth and a reversal from the 0.8 per cent expansion in the first quarter.

This came about due to weaker performances in manufacturing, especially in the key electronics sector amid challenges such as cooling demand for consumer electronics, as well as certain segments of the services sector such as transportation and storage.

MTI does not expect a technical recession, which is defined as two consecutive quarter-on-quarter contractions, and sees GDP returning “to a slight positive growth” in the third and fourth quarter of this year, said the ministry’s chief economist Yong Yik Wei.

“But I will also say that there are risks because of the global economic environment having weakened,” she added in response to a question from CNA.

“We shouldn't be surprised if from time to time, we do see some negative quarter-on-quarter growth.”

When asked about the simmering geopolitical tensions over Taiwan and possible economic impact, Mr Lim said Singapore is “watching the situation carefully” like many countries around the world.

Noting that both China and Taiwan are key trading partners of Singapore, he added: “Should there be any deterioration in the situation there, I think it will certainly affect, not just the overall economic flows into Singapore, but also the rest of the world especially in key areas like semiconductors, electronics and so on and so forth.”

The Monetary Authority of Singapore (MAS) noted that its current monetary policy stance “remains appropriate” and that its next policy review remains as scheduled in October.

By then, the central bank will be examining “all factors pertinent to inflation, growth developments and the outlook for 2023”, while specifically assessing “the cumulative effects of the past tightening moves … on the economy”, said MAS’ deputy managing director Edward Robinson.

The central bank has tightened monetary policy four times in about nine months, with the latest on Jul 14 being an off-cycle surprise to re-centre the mid-point of the Singapore dollar nominal effective exchange rate policy band “up to its prevailing level”.

Some economists are expecting further action from MAS.

Barclays economists Brian Tan and Shreya Sodhani expect the central bank to re-centre its policy band again in October or sooner, while raising the slope by 50 basis points.

“A further overshoot in core inflation would likely lead the MAS to conclude that another upward re-centring is warranted, especially ahead of the goods and services tax hike in January 2023 – which would likely incur a higher risk of triggering second-round effects if inflation expectations are still high,” they wrote in a note.

Likewise, Ms Selena Ling, chief economist and head of treasury research and strategy at OCBC Bank, said the revised second-quarter GDP figure and narrowed full-year growth forecast announced on Thursday do “not significantly impact expectations for another monetary tightening” in October.

She noted that Singapore’s headline and core inflation, which picked up more than expected in June, have “not peaked or stabilised yet”. In addition, major central banks, including the US Federal Reserve, have pushed back against market speculation that a dovish pivot is imminent despite a cooler-than-expected US inflation report for July.

Ms Ling also said the risk of a potential technical recession “cannot be ruled out”.

“Any further moderation in manufacturing momentum, especially given the high base last year, would mean that the services sector would have to do the heavy lifting from here, but regional and domestic consumer sentiments are highly (dependent) on the sustained health of the jobs market and fickle market conditions,” she wrote in a note.