Singapore GDP growth risks slowdown to 3% over weaker exports

There is softer import demand from China.

Singapore's GDP growth is expected to slow down from 3.6% in 2017 to 3% in 2018 as export growth moderates from 2017’s strong acceleration, The Institute of Chartered Accountants in England and Wales (ICAEW) said.

According to a report, GDP expanded 4.3% YoY (up from 3.6%) driven by a 10.1% surge in manufacturing activity and a strong performance by the service sector. However, the construction sector fell for the seventh consecutive quarter as the correction in the housing market continues to weigh on activity.

Moreover, the growth in goods export volumes slowed to 1.9% in Q1, the weakest annual rate in more than a year. "Whilst base effects have exaggerated the slowdown in recent trade data, a deceleration in growth is expected this year. This reflects a normalisation in the global electronics cycle and softer import demand from China," ICAEW said.

Also read: Economists divided over Singapore's higher GDP forecast

That said, overall growth in world trade, as measured by the import demand of Singapore’s trade partners, is still expected to rise by 6% in 2018. "This is much higher than the average for the period 2012-2016, albeit down from 7.9% in 2017," it added.

Meanwhile, a slowing in export-led manufacturing activity will be partly offset by a recovery in more domestic-orientated service sectors. "Residential investment is forecast to become less of a drag on headline GDP and labour market conditions are expected to improve, supporting household spending," ICAEW added.

ICAEW regional director for Southeast Asia Mark Billington commented, “Fading global trade tailwinds are likely to mean a broad-based moderation in export growth in the region, including Singapore. That said, exports should still be supportive of GDP growth, in the absence of any escalation in US-China trade frictions."

Moreover, an improvement in company profits and a broadening domestic recovery is expected to spur business investment growth in 2018. "Government measures to support businesses and encourage investment, as well as increases in its own infrastructure spending (including the recently announced $5b rail fund) should boost investment," he said.

However, this will be partly offset by ongoing weakness in residential investment, as a result of a large oversupply in the market, which will take some time to unwind, Billington added.

"Over 2018, a more broad-based recovery in services is expected to lead to better employment conditions. This should support some modest wage growth and, coupled with additional fiscal support, bolster consumer spending," he concluded.