ECONOMY | Staff Reporter, Singapore

What lies ahead for Singapore economy this 2016 amid soft data?

Check whether the government needs to revise 1-3% growth outlook or not.

Singapore ended 2015 on a soft note after the annual pace of economic growth slowed to its weakest since the global financial crisis in 2008/09. The government maintains their 1-3% growth outlook for 2016 but analysts have different views.

Here’s what they had to say:

Francis Tan, analyst, UOB
Singapore’s external demand remained weak, while the domestic sectors continue to face the challenges from the on-going economic restructuring amid tight labour market conditions. Economy-wide labour productivity remained weak since the labour productivity reform started in 2011. The dovish central bank actions around the world and the global disinflationary trend had resulted in a decline in Singapore’s export competitiveness, as well as the importation of global deflation onto its shores. We maintain our forecast for 2016 GDP to grow 2.7%, at the higher end of government’s 1-3% growth forecast. Although Singapore’s manufacturing sector is not out of the doldrums yet (and we are expecting 1Q 2016 to be another quarter of on-year contraction for this sector), we remain optimistic that there could be some pickup in external sectors (such as manufacturing) growth in 2H2016. First, we expect the economic conditions in the US to continue on an improving path. Better jobs numbers, stronger wage gains due to the tighter labour market, and a stronger USD will see the rise of consumption demand from the average American consumer. The pickup is not just in the US as latest economic indicators have shown signs of improvement in various advanced economies, even as growth in the emerging economies remain challenging.
Second, the basis effects from the low base in 2015 will provide some support for growth. The services sector will continue to be a bright spot. However, we forecast that services growth for 2016 may slow to 2.7%, from 3.6% in 2015 as the wholesale & retail trade faces the higher base effects from 2015, while the finance & insurance sector may grow at a slower pace, a result of a slower trajectory for rising interest rates and still-weak business sentiments.

Deyi Tan, analyst, Morgan Stanley
Singapore’s big-picture macro outlook likely to remain subdued: Overall, Singapore’s economy remains under pressure from both cyclical and structural factors and global and domestic factors, in our view. Indeed, besides the lower global GDP growth and rising cyclical risk of a global recession, Singapore’s economy also faces other domestic macro headwinds from immigration slowdown, poor demographics and a leverage overhang (amid Fed normalisation). In our view, policymakers need to offset the growth drag from tight immigration policies, aging population, and high leverage via improving productivity.

Additionally, weak demography also means that policymakers may need to transition from a growth strategy of importing MNCs to a strategy of exporting competitive domestic corporates. In other words, policymakers may need to focus more on GNI expansion rather than GDP expansion. To the extent to which a vibrant private sector is needed to drive the former, policymakers may need to move away from the high level of state involvement to rely more on Adam Smith’s invisible hand.
Lower growth channel and lower inflation mean the reduced S$NEER appreciation slope is here to stay for longer Morgan Stanley’s 2016/2017 GDP growth forecasts currently stand at 2.3%/2.7% respectively, but risks are likely skewed to the downside. On the inflation front, policymakers have revised downwards their 2016 headline CPI forecast range to -1% to 0% from -0.5% to 0.5% previously, while maintaining their core inflation forecast range at 0.5% to 1.5%. Overall, policymakers guided that the current SGD NEER policy stance remains appropriate and unchanged.

Suhaimi B Ilias, analyst, MayBank
We revised 2016 growth forecast to +1.7% from +2.0% previously (2015: +2.0%). China’s slowdown, low crude oil price and financial market volatility are dampening trade-related and O&G-related activities and financial services, besides the on-going impact of tightening rules on foreign workers and property cooling measures. Policies will be key to outlook, with upcoming Budget 2016 on 24 Mar 2016 after the election Budget 2015; debates over property cooling measures; and MAS policy meeting in Apr 2016.

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