Is the services sector strong enough to be Singapore’s safety net?

It can’t turn to construction and manufacturing now.

The city-state is on the fast lane in joining its industrial economy peers, where services are contributing a significantly large share of GDP.

However, with construction waning and manufacturing showing almost no signs of life, can Singapore fully lean on its services sector?

According to analysts from Deutsche Bank, with a wealthy yet aging society, Singapore’s need and ability to consume more services will balloon.

Deutsche Bank says they doubt if services value added can be substantial enough to offset the structural weakness in manufacturing and construction.

“Consequently, we think that Singapore’s potential GDP growth rate is bound to decline over time. Averaging 2-2.5% growth in the medium term may well be the limit, as has been the case in industrial economies with comparable income and level of development,” Deutsche Bank said.

Meanwhile, Deutsche Bank also sees weakness in Singapore’s private investment outlook, while consumption would hold as the labor market remains tight.

“We are expecting a recovery in exports and imports, although our optimism may not be justified if economic slowdown in China continues. On the production side, we expect lingering weakness in manufacturing and construction, but continued (relative) strength in services,” Deutsche Bank said.