Economists: S’pore set for full-year expansion for 2019, but growth prospects remain

Singapore’s economy is on track to record positive full-year economic growth, having averted a recession with its latest third-quarter performance, according to economists. — TODAY file pic
Singapore’s economy is on track to record positive full-year economic growth, having averted a recession with its latest third-quarter performance, according to economists. — TODAY file pic

SINGAPORE, Oct 15 — Even though Singapore’s economy grew a dismal 0.1 per cent in the third quarter from the same period last year, economists noted that the city-state has averted a recession and is on track to record positive full-year growth.

Forecasts among economists TODAY spoke to ranged from 0.3 per cent to 0.6 per cent economic growth for the full year — representing weak expansion, but far better than a contraction.

In the first three quarters of 2019, growth has come in at 1.1 per cent, 0.1 per cent and 0.1 per cent when compared to the same period last year. That means average growth over those nine months was 0.43 per cent.

A recession is defined as two consecutive quarters when the economy shrinks in quarter-on-quarter terms. In the second quarter, the Singapore economy slumped 2.7 per cent compared with the first quarter.

Recession averted

That meant the Republic would have been in a recession if the economy had shrunk again in the third quarter — but it grew 0.6 per cent in quarter-on-quarter terms. It also means that a recession in 2019 is not possible no matter what happens in the current fourth quarter.

In its monetary policy statement released yesterday, the Monetary Authority of Singapore (MAS) said that Singapore’s full-year economic growth is expected to come in at around the midpoint of the 0 to 1 per cent forecast range and improve “modestly” next year.

In August this year, the Ministry of Trade and Industry slashed its 2019 growth forecast from between 1.5 and 2.5 per cent to between zero and one per cent.

A happier ending in 2019?

Economists do not expect the economy to contract in the current fourth quarter, which leads them to their full-year estimates of between 0.3 and 0.6 per cent.

While CIMB economist Song Seng Wun and United Overseas Bank economist Barnabas Gan both expect fourth quarter growth to remain almost flat — coming in at 0.1 per cent, others are tipping a slight recovery in the fourth quarter.

One factor which could give the Singapore economy a lift in the fourth quarter is that it did not perform very well in the fourth quarter of last year, registering year-on-year growth of 1.3 per cent and a quarter-on-quarter contraction of 0.8 per cent.

Economists say this “low-base effect” might ensure that this year’s fourth-quarter figure is respectable — since the performance this year is compared with that of a year ago.

‘Glimmer of hope’ for manufacturing

DBS Bank senior economist Irvin Seah believes another factor which could lift fourth-quarter growth is that the worst for the manufacturing sector may be over. The sector has been shrinking for the past three quarters due to a downturn in the global electronics cycle.

“The trend is not heading further down. We are beginning to see a tiny glimmer of hope,” said Seah, who also pointed to apparently more constructive negotiations last week between the United States and China over their protracted trade war.

Seah expects “a highly expansionary fiscal policy” from the Singapore government early next year — meaning he expects the Government to pump lots of money into the economy to stimulate growth.

Maybank economist Chua Hak Bin is also expecting a slight recovery in the last quarter of 2019, with the economy forecast to grow between 0.5 and one per cent.

He cites stronger property transactions than this time last year — when the sector was reeling from the July cooling measures — as well as a higher number of business and tourism travellers being diverted from protest-wracked Hong Kong, as factors set to give a slight boost to the economy.

Uncertainty still lies ahead

That being said, economists caution that headwinds still abound and growth in the coming quarters is likely to remain flat.

“Singapore still remains wedged between a negative external environment, but at the same time, has positive domestic resilience — for example, the information technology and the telecommunications sector can serve as a cushioning factor for the slowdown,” said Gan.

Economists are more optimistic about the economic outlook in 2020, with several estimating growth to come in between one and two per cent.

But that is also dependent on the outcome of negotiations between the world’s two largest economies.

Referring to the uncertainty over trade negotiations, Song said: “One day, they can shake hands. Another day, they may whack each other again.”

Selena Ling, head of treasury research and strategy at OCBC, said that the uncertainty over the global trade environment may not “fully dissipate” without a “complete unwinding” of existing tariffs between the US and China.

In view of the weak economic outlook and lower-than-expected inflation, MAS has eased its monetary policy slightly — effectively slowing the rate at which the Singapore dollar appreciates.

Economists were not surprised by MAS’ move as it joins other central banks in the world in adopting a more accommodative monetary policy as growth slows.

While most economists are not expecting a further easing of monetary policy in MAS’ next review in April 2020, Terence Wu, currency economist at OCBC, said that “further policy-easing measures may be on the cards, and we do not rule out a further reduction of slope to zero appreciation in the next meeting”. — TODAY

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