SINGAPORE, March 12 — At least two research houses have cut their growth forecasts for the Republic’s gross domestic product (GDP) this year, citing the weaker global outlook, which will place greater pressure on the manufacturing sector here.

In their respective second-quarter outlook reports, DBS Group Research slashed its forecast for Singapore’s economic growth in 2016 to 1.5 per cent from 2.1 per cent previously, while Credit Suisse lowered its projection to 1.7 per cent from 1.9 per cent.

Despite the adjustments, DBS and Credit Suisse’s forecasts are still within the official 1 to 3 per cent range expected by the Ministry of Trade and Industry (MTI).

“Our growth forecast change reflects a weaker global growth assumption, with US, Europe and also Japan’s 2016 outlook cut since the end of last year. The offshore and marine sector also looks weaker due to the further fall in oil prices, which could have a negative knock-on impact to other sectors,” said Credit Suisse analyst Michael Wan.

The DBS report noted that, within Singapore, the manufacturing sector continues to be the main drag but there is a risk that the resilient services sector is slowing down as well.

“The manufacturing sector is in recession and the outlook is not improving. Key electronics cluster is undergoing a down-cycle amid demand weakness and an uncertain global environment. The slump in oil prices has led to drastic consolidation in the oil and gas industry,” said DBS economist Irvin Seah.

“Couple these with the persistent rise in manufacturing costs and offshoring of MNCs, the outlook for the overall manufacturing sector is grim in the medium term.”

While the services sector has been a key pillar of growth, downside risk rising with greater volatility in the coming quarters looks likely to weigh on the financial services cluster. The cluster accounted for about 34 per cent of overall GDP growth during the past three years.

“If services tanks, GDP growth will slump. The economy could enter a ‘cold winter’ and risk of a technical recession should not be discounted,” said Seah, who is expecting “at least one quarter of GDP contraction”.

Due to the weaker growth profile, coupled with inflation that is likely to remain negative for most of this year, DBS said the Monetary Authority of Singapore (MAS) “may be compelled” to ease exchange rate policy to a zero appreciation path in its upcoming meeting in April. However, Wan said there are some potential bright spots ahead, such as stimulus measures boosting growth prospects in China and the projected slower pace of the Federal 
Reserve rate hike, which could support private consumption.

He expects MAS to keep its policy stance. “The central bank has set a rather high bar to further policy easing, highlighting that outright recession and/or widespread (deflation) are key triggers for further exchange rate policy moves,” he said.

Last year, Singapore’s GDP growth came in at 2 per cent, the weakest annual growth since 2009, when the economy was hit by the global financial crisis and shrank 0.6 per cent.

This gave rise to expectations from economists that certain policies could be revised or even scrapped in the upcoming Budget to help the business community ease into the “modest” 1 to 3 per cent growth expected this year.

Minister for Finance Heng Swee Keat is scheduled to deliver the 2016 Budget speech on March 24 — the first from this term of Government. Heng has said that the Budget will have a “strong focus” on the economy, with one of the priorities being to assist small and medium enterprises (SMEs) as they continue along their restructuring journey. ― TODAY