Growth in 2017 expected to be only slightly higher than this year, just above 2%
October 31, 2016: Singapore’s central bank, the Monetary Authority of Singapore (MAS), said that the country’s small, trade-dependent economy is going through a cyclical downturn that has lasted longer than expected and is not expected to pick up significantly in 2017. It said so in its biannual Macroeconomic Review which was released on October 25.
The outlook for the global economy isn’t very bright and is forecast to expand at a ’steady but mediocre pace’ over the coming year. As a result, demand will remain uneven across Singapore’s key export markets, causing trade-related sectors to struggle.
“Risks remain in the economies of major trading partners such as China and the euro zone and while the United States economy is showing signs of improvement. It will take time for this to translate into real demand for Singapore exports,” said DBS economist Mr. Irvin Seah. Moreover, exposure to sectors that have been faring poorly, such as oil and gas, transport services and semiconductors, threaten to exacerbate the situation.
“The domestic economy has slowed discernibly since the last Review. Growth came in largely flat in Q2 before deteriorating in Q3,” the MAS stated. The central bank noted that on average, the GDP had contracted by 2 per cent quarter on quarter in the last half year, a marked step-down from the average 3.2 per cent growth in the preceding two quarters.
The Macroeconomic Review also noted that global growth is expected to come in at 3.7 per cent this year, and edge up slightly to 3.8 per cent next year, as business investment in major economies stays sluggish due to elevated economic uncertainty.
The outlook for Asia is stable but will be ‘sub-par’ compared with the period before the global financial crisis, MAS said.
The weak trade outlook means the nation’s growth in 2017 will depend largely on its domestically oriented industries and the services sector, the MAS added. Financial services, which was the cause for less than optimal growth in the services sector in previous quarters, is expected to see some recovery. Other aspects that should provide some support to the economy are government spending on information and communications technology initiatives, infrastructure projects as well as robust demand for services, such as healthcare.
The government expects the GDP of the country to grow only by 1%-2% this year and only slightly higher in 2017. The central bank added that business sentiment in Singapore remains poor, especially among small and medium-size enterprises. “While there is no evidence of widespread consolidation among firms, the subdued business environment could be taking a significant toll on smaller domestic corporates,” the MAS noted.
Irvin Seah said the outlook “will remain downbeat” but is unlikely to deteriorate sharply.