SINGAPORE, Nov 22 — For most of this year, observers were wringing their hands over Singapore’s economic performance, but the third quarter has now pulled in better-than-expected figures. 

Gross domestic product (GDP) growth went up 0.5 per cent for the July-to-September period compared with a year before, far exceeding advanced estimates of a mere 0.1 per cent growth.

The latest results also reversed a 2.7 per cent quarter-on-quarter contraction between April and June, recording a 2.1 per cent quarter-to-quarter growth between July and September.  

Just about a month ago, Prime Minister Lee Hsien Loong said during a Forbes Global CEO Conference that Singapore would be “lucky” if it manages to achieve a growth rate of above zero.  

Advertisement

With the economy growing at 0.6 per cent for the first three quarters of this year, the Ministry of Trade and Industry (MTI) has now revised its full-year GDP forecast upwards by raising the lower end of its forecast range, from between 0 and 1 per cent previously to between 0.5 and 1 per cent. 

Gabriel Lim, permanent secretary of the ministry, told reporters at a briefing yesterdaythat there are signs of stabilisation in the global economy.

TODAY explains what these signs are, whether there is a basis for optimism, and what the economic outlook is for Singapore. 

Advertisement

What are the economic indicators showing?

While there is still uncertainty in the economy, these weak links are not as shaky as before, economists said. 

The manufacturing sector, which has so far been a major drag, is contracting at a slower pace than before. It shrank by 1.7 per cent in the third quarter, compared to a year before — a smaller contraction compared with the 3.3 per cent decline in the second quarter. 

For exports, data from trade agency Enterprise Singapore showed that its decline has also slowed, with non-oil domestic exports contracting 9.6 per cent in the third quarter, compared with 14.7 per cent in the previous quarter. 

MTI expects the manufacturing sector — which accounts for the biggest percentage of Singapore’s economy — to recover. 

Part of this recovery will come from the electronics sector, which has been suffering from the twin effects of the trade war between the United States and China, as well as the maturing of the global electronics cycle.

Kelvin Wong, assistant managing director for planning at the Economic Development Board, said that inventories in electronic firms are stabilising. 

He also expects more demand from telecoms equipment and smartphones with the setting up of the 5G network to drive the recovery of the electronics cluster.  

Several economists said that they expect the manufacturing sector to bottom out, with some predicting that it will come as soon as the end of this year. 

Are there reasons to be optimistic?

While economists agree that the economic indicators give some hope for things to turn around more, some still remain cautious because of how quickly things may unravel on the external front. 

On the international front, there has been progress made in easing trade tensions between the US and China, with both parties indicating their commitment to ink a phase-one deal. 

However, Jung Sung Eun, an economist from market research firm Oxford Economics, said that Singapore is not out of the woods yet, cautioning against “excessive optimism” over a possible deal involving the world’s two biggest economies. 

Barnabas Gan, an economist from United Overseas Bank (UOB), was more upbeat, saying that “there is more good news than bad news on the global front.” 

Calling for “cautious optimism,” Chua Hak Bin, an economist from MayBank, said that the working assumption for recovery in the manufacturing sector and for exports to continue is that a successful phase-one deal is in the interest of American president Donald Trump because of the presidential elections next year. 

While there is still a risk that the lack of a deal would hamper the ongoing recovery, Dr Chua said that there are other domestic factors in Singapore which would help buffer a potential stalled recovery if a phase-one deal is scuppered. 

The expanding construction sector, financial services and tourism sector are some of the factors in Singapore’s favour. 

Brian Tan, an economist at Barclays Bank, leaned towards caution as well, highlighting the divergence between exports and the production of electronics as another area to watch.

Electronics exports have been rebounding since June, while industrial production of electronics has been going down, he said. 

One possible explanation for this divergence is that only low-end manufacturing — in terms of the production of material goods and shipping them out to export markets — is seeing improvements.

Higher-end manufacturing, such as chip design, may not be doing as well and this could then affect overall GDP growth rate. 

What is the economic outlook in 2020?

MTI projects Singapore’s economy to grow somewhere in the range of between 0.5 and 2.5 per cent next year as global growth is expected to be modest. 

Economists, in general, are in agreement with that view, believing that the signs of recovery emerging now would likely continue next year. 

Tan of Barclays Bank revised his projections for 2020 upwards from 0.7 per cent to 0.9 per cent, significantly below market consensus, due to the growing divergence between exports and industrial production data.

Gan of UOB expects growth to come in at 1.5 per cent next year, helped by a manufacturing sector returning to positive territory. 

In an analyst note by Dr Chua of MayBank and Ms Lee Ju Ye, an economist at the same bank, they said that the economy would grow 1.6 per cent next year, again because of a recovering manufacturing sector. 

With global supply chains shifting their production facilities to South-east Asia as a result of the ongoing trade tensions, Dr Chua believes that this will help Singapore improve its business loans given its position as a financial hub in this region. 

When asked whether Singapore would benefit from these changes in supply chains, Lim of MTI said that nobody would benefit when the world's two biggest economies have an acrimonious relationship. — TODAY