(Bloomberg) — Singapore expects the island’s economy to grow 2 to 3 percent this year, but the forecast is supported by robust external demand despite ongoing risks.
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The Ministry of Trade and Industry’s updated growth forecast was released on Tuesday along with final second-quarter gross domestic product figures, showing that growth during the period was in line with the pace initially estimated.
GDP grew 0.4% quarter-on-quarter in the three months to June. The economy grew 2.9% year-on-year. The result prompted the city-state to cut its growth expectation for 2024 to the upper half of the previously forecast range of 1% to 3%.
Growth in the second quarter was driven by the finance and insurance and information and communication sectors. In contrast, the manufacturing industry shrank, mainly due to a sharp decline in pharmaceutical production in the biomedical manufacturing cluster, according to the MTI. Annual growth in the services sectors slowed to 3.7% from 4.3% in the previous quarter, it said.
“The projected recovery in the manufacturing sector, particularly the electronics cluster, is expected to benefit the trade-related services sectors,” said Gabriel Lim, MTI permanent secretary, in a briefing after the release. “Meanwhile, the ongoing recovery in air travel and tourism demand will support growth in the aviation and tourism-related sectors. Growth in the financial and insurance sectors should also remain robust.”
Lim added that the outlook for Singapore’s external demand remained “stable” for the rest of the year, but warned that downside risks remained in the global economy.
Recent rumors of a recession in the U.S. have heightened concerns about slowing demand in a world already grappling with geopolitical tensions and China’s uneven recovery. That’s bad news for trade-dependent economies like Singapore, given that the value of its goods and services exports in 2023 was about 1.6 times its GDP.
Another cause for concern is the turmoil in financial markets this month. The weak US jobs report and the second interest rate hike by the Bank of Japan this year drove traders into safe haven assets such as US Treasuries.
Edward Robinson, deputy chief executive of the Monetary Authority of Singapore, said it was too early to say whether the settlement had already taken place.
“We need to remain very vigilant over the next few months as this process takes place, this adjustment of currencies to different exchange rates,” he said at the press conference. “For Singapore, currency fluctuations are mitigated by the fact that the framework allows us to absorb this volatility.”
Robinson added that financial markets in the region would also need to be “carefully monitored” in the coming months.
The MAS orients the local dollar against a basket of its major trading partners and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of the currency band.
The central bank will hold its next review in October – the last of the year – and Bloomberg Economics expects the policy framework to remain unchanged again as core inflation remains high. The MAS does not expect the indicator to fall to 2% before 2025.
The rising cost of living remains the main issue for Prime Minister Lawrence Wong and he promised to “double efforts” to contain price increases.
On the eve of Singapore’s National Day last week, Wong unveiled plans to help citizens cope with “employment setbacks” and strengthen social safety nets.
– With support from Shinjini Datta, Cynthia Li and Ailing Tan.
(Adds a comment from the MAS Chief Economist from the ninth paragraph.)
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