RHB cuts GDP forecast to 2% amidst tariff risks

RHB analysts recommended a shift in portfolio allocations toward sectors offering stability and resilience.

As global trade risks mount, RHB has called for a pivot to defensive investments in Singapore, highlighting the growing fragility of the trade-dependent economy amidst US-China tariff escalations.

In its latest market strategy report, RHB analysts recommended a shift in portfolio allocations toward sectors offering stability and resilience.

“Rising global tariffs pose risks to Singapore’s trade-reliant economy,” the report noted, explaining the rationale behind cutting the nation's 2025 GDP growth forecast to 2%, with downside risks skewed toward 0.5%.

Non-oil domestic exports (NODX) growth has also been slashed to 0%, reflecting deteriorating external demand.

The report outlined three possible scenarios for the ongoing US-led tariff escalation, assigning a 55% probability to its base case, which sees universal tariffs rising to 20% in the second half of 2025.

In this scenario, Singapore faces a sharper slowdown due to its “significant trade exposure” to Greater China, intra-ASEAN, and the US.

“We expect increasing headwinds for the externally-oriented sectors from 2Q25 onwards,” the report warns. It adds that sectors such as “machinery & transport, chemicals & related products, and miscellaneous manufacturing will see the most negative impact.”

With the Singapore Overnight Rate Average (SORA) falling from 3% in January to around 2.5% by mid-April, and further US rate cuts on the horizon, RHB suggested investors look to Real Estate Investment Trusts (REITs) for defense.

“REITs could be a relatively defensive play,” analysts stated, highlighting industrial and office REITs like CapitaLand Ascendas REIT, Keppel REIT, and Frasers Centrepoint Trust as top picks due to their income stability and upside potential.

In contrast, the report takes a more cautious view on Singapore banks, noting “SG Banks could face pressure on operating income from weaker loan demand and slowing global growth.” Even so, dividend payouts offer a cushion: “Dividends offer some support.”

RHB’s strategy is clear: move to low-volatility sectors. It named consumer staples, healthcare, land transport, telecommunications, and domestically oriented firms as pillars of a defensive strategy.

“Defensive plays... offer resilience during downturns,” the report read, suggesting companies like Sheng Siong, Raffles Medical, ComfortDelGro, and Singtel as well-positioned in the current environment.

Singtel, in particular, is seen as a standout with strong dividend support and growth prospects driven by capital recycling and efficiency initiatives.

RHB estimated Singtel’s earnings to rise 10% in FY25 and 15% in FY26, bolstered by “planned cost savings of SGD200m annually” and a “mid-term capital recycling target of $6b.”

Beyond large caps, the report identified small-cap names with bottom-up growth potential such as APAC Realty, Centurion Corp, and ISO Team, which are backed by sector-specific catalysts and robust earnings forecasts.

Additionally, non-REIT high-yield stocks like DBS Group and ISOTeam are flagged for their attractive dividend yields. DBS, for instance, plans to return SGD8bn in capital to shareholders over three years, which translates into a hefty 38% YoY rise in FY25F DPS.

In a climate clouded by geopolitical tension and macroeconomic volatility, RHB's Singapore strategy underscored prudence over risk.

“We recommend investors to prioritise defensive companies that offer sustainable earnings growth in an uncertain environment,” the report concludes, with a clear tilt toward income-generating, stable, and low-correlation assets.