Unsustainable growth in manufacturing could hit Singapore's GDP

The boost from the manufacturing sector could ease in H2 as Chinese import demand cools down.

The manufacturing sector’s 10.2% YoY growth was the biggest sector growth for Singapore in Q2, despite gross domestic product (GDP) easing down to 3.9% from 4.5% in Q1.

Amidst rising trade tensions, the sector has fared well on the back of moderate yet healthy demand for electronics as well as the boost from the biomedical sector.

Also read: Manufacturing and services slowdown could hurt Singapore economy

Huttons Asia considers Singapore as the manufacturing hub for high-end tech products and components.

“Most of the demand come from greenfield markets and specialised enterprise services,” the firm explained. “So, it is not surprising to see that the manufacturing sector is holding well amidst the current global situation.”

However, Oxford Economics lead economist Sian Fenner said that the sector’s pace of growth may not be sustained over the second half of 2018.

"We look for manufacturing growth to ease in H2 as Chinese import demand cools and global electronics demand slows,” she told Singapore Business Review. “In part, this reflects lower production in the biomedical sector, which is lumpy and volatile,”

On the other hand, Huttons Asia believes that manufacturing as well as R&D for high-end products and services will be spared from experiencing contraction in the latter half of 2018.

In addition, the firm thinks that sectors related to renewable energy, eco-technologies, and waste management will approach growth.

“On the technology side, we will see an upsurge in demand for specialised services as new technologies like blockchain , mobile and e-commerce becomes more integrated across various sectors,” they added.

Meanwhile, Fenner believes that construction could face recovery in non-residential segments by the second half of 2018. The sector’s growth fell 4.6% in Q2.

“We also look for a gradual pick-up in household spending as improving employment growth should support some modest wage growth.,” she noted. “This combined with tourism should help sectors such as retail and food and beverage sectors.”

For Huttons Asia, big-box retailers and small retailers will continue to feel the crunch as mobile e-commerce becomes more prevalent.

Amidst relatively being safe with regards to pressing trade war concerns, the firm believes that domestic-oriented sectors should eye on riding on new technologies and trends to step up their operations, not only to deepen customer loyalty, but to woo new market segments as well.

Also read: Singapore could be the first casualty of a looming trade war

Singapore is no exception to face trade war concerns, considering that the world economy is currently in the midst of reconsolidating amidst major events including Brexit, the Trump administration, and the changes made by the Chinese government, Huttons Asia said. In this regard, they believe that the country’s 2018 GDP will be along 3% to 4.5%.

This is close to Fenner’s expectation, who believes that the Lion City will face a GDP growth of 3% by 2018 before easing into 2.4% by 2019.

“We expect economic momentum to slow further during H2, with export growth and manufacturing activity easing as Chinese import demand cools and trade protectionism dampens growth,” she explained. "However, we continue to forecast a more broad-based pick-up in service sector growth.”