Outlook brightens after rocky ride
SINGAPORE’S economy has staged a dramatic turnaround over the past year, going from the cusp of recession to its fastest pace of growth in almost a half-decade.
This strong showing is fuelling optimism among economists, companies and market watchers about the country’s growth prospects for 2018.
Much of the lift has come from surging global demand for electronic gadgets, which is expected to continue driving growth in the new year. But beyond this short-term, trade-driven lift, concerns linger over Singapore’s longer-term growth prospects.
An explosion in semiconductor manufacturing helped reverse Singapore’s economic fortunes this year. A slew of new consumer electronics releases, including new mobile phone models, fuelled a pick-up in global demand for semiconductors and related equipment.
CIMB Private Bank economist Song Seng Wun says the manufacturing sector likely expanded around 11 per cent in 2017, making it the best performer by far; this was also its strongest pace of expansion since 2010.
Resurgent global demand also drove an export recovery, prompting trade promotion agency IE Singapore to revise its forecast for non-oil domestic exports (Nodx) upwards.
Nodx is now expected to rise 6.5 per cent to 7 per cent, up from an earlier forecast of 5 per cent to 6 per cent. If the forecast pans out, Nodx growth in 2017 will come in at its fastest pace in seven years.
There have been concerns that the trade-driven lift from electronics manufacturing might fizzle out. For much of the year, the surge in activity was concentrated mainly in trade-related industries, with growth across other sectors remaining patchy.
But the pick-up is showing signs of broadening to benefit other industries - in particular, the services sector, which makes up two-thirds of the economy and employs the bulk of workers.
Data on the economy’s performance in the third quarter hints at this broadening recovery, says DBS senior economist Irvin Seah.
The economy grew 5.2 per cent in the July-to-September period from a year earlier - its strongest quarterly showing since 2013.
While the bulk of this growth was driven by manufacturing - for which output surged 18.4 per cent - the services sector expanded 3 per cent year-on-year, faster than the preceding quarter’s 2.5 per cent increase.
Seah notes: “A turnaround in the services sector will make the improvement in growth more sustainable.”
The Ministry of Trade and Industry has upgraded its 2017 growth forecast to 3 to 3.5 per cent, from an earlier estimate of 2 to 3 per cent.
HSBC chief Asean economist Joseph Incalcaterra says: “What we’ve been seeing is a two-speed economy in Singapore, where the pick-up wasn’t necessarily passing through to the domestic economy.
“Finally we’re starting to see signs that this is ending, and growth is becoming more broad-based.
“Singapore’s growth in 2018 will come from the continuation of the cyclical boost, albeit at a softer pace than in 2017, as well as broader underlying drivers.”
The pace of economic activity could slow slightly next year, partly due to this year’s high base. But 2018 will also be the services sector’s turn to shine, especially since manufacturers could find it tough to keep up last year’s breakneck pace of expansion.
ING economist Rob Carnell says Singapore’s economy “has already turned the corner” and is moving up a gear in terms of activity. “We’re likely to see continued gains in the tradeable sector.”
CIMB Private Bank’s Song says last year’s rapid expansion in factory output “is probably not sustainable”, but the sector is still expected to register robust growth of between 4 and 7 per cent next year.
Services sector growth has been lagging behind manufacturing but the gap should narrow in the coming quarters, he adds. He expects the economy to grow 3.7 to 3.8 per cent in 2018. “The pace is similar to 2017, but the contribution to growth will be more balanced - more of it will come from service-producing industries.”
DBS senior economist Irvin Seah agrees that services could replace manufacturing as the key driver of Singapore’s economy next year.
“Externally-oriented services industries are expected to do well in the coming quarters compared with the domestic services sector.
However, there is still a risk that the economy could take a turn for the worse. The ongoing manufacturing boom could turn out to be temporary and short-lived. Some segments of the economy remain soft; the construction industry, for example, has been shrinking for five straight quarters.
