Singapore economy braces for bumpy year

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Singapore high streetWith Singapore’s economy under pressure from the fallout of China’s contraction and a world market that shows little signs of improvement, the city state is bracing for a bumpy ride in 2016, economists say.

This notion comes after Singapore’s GDP expanded by 2.1 per cent in 2015, in line with the government’s official growth forecast and beating analysts’ expectations, the Ministry of Trade and Industry announced on January 4.

For 2016, the GDP growth forecast is “close to 2 per cent”, while private sector economists had expected growth to come in at 1.9 per cent, according to the latest quarterly poll by the Monetary Authority of Singapore in December 2015.

However, senior economist of DBS bank Irvin Seah noted that despite beating expectations, overall GDP growth was at its slowest in six years. Risks also remain with the potential capital flight that could result from further US interest rate hikes and fears of further deceleration in the Chinese economy, he said.

In detail, Singapore’s manufacturing sector contracted by 6 per cent in the fourth quarter, extending the 5.9 per cent decline in the previous quarter. The sector was primarily weighed down by a decline in the output of the electronics, transport engineering and precision engineering clusters. On a quarter-on-quarter basis, the sector contracted 3.1 per cent, following the 3.5 per cent contraction in the previous quarter.

The sector remains “the weakest link” for Singapore’s economy, Seah said. “Both cyclical and structural challenges are dampening the growth prospects of this sector. External competition, rising business costs and weak external demand were key challenges facing the manufacturing sector for the past years.”

The construction sector expanded by 2.2 per cent, up from the 1.1 per cent growth recorded in the previous quarter, with growth supported by a pick-up in public sector construction activities, the ministry said. On a quarter-on-quarter basis, the sector expanded by 7 per cent, a reversal from the 4.9 per cent contraction in the preceding quarter.

The services industries posted year-on-year growth of 3.2 per cent in the fourth quarter, easing slightly from the 3.4 per cent growth in the previous quarter. Growth was supported mainly by the wholesale and retail trade, and finance and insurance sectors. On a quarter-on-quarter basis, the services producing industries expanded 6.5 per cent, an improvement from the 2.9 per cent expansion in the previous quarter.

“Singapore, I think, will be particularly challenged because in addition to the overall macro global outlook, we’re trying to do two things,” said DBS CEO Piyush Gupta, who was speaking at the DBS Private Banking Outlook for the first half of 2016 on January 6.

“One, we’re trying to deflate parts of the economy, particularly the housing market, including consumer demand. Secondly, we’re trying to restructure the supply side through the labour crunch, land… This is not an easy transition for us. So I continue to think this is the trickiest and most sensitive time in Singapore’s economic transformation that we’ll see for a long time,” he added.

Gupta said China continues to be a “key market to watch.” The country is Singapore’s largest trading partner, and its slowing economy has put investors on edge.

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Reading Time: 2 minutes

With Singapore’s economy under pressure from the fallout of China’s contraction and a world market that shows little signs of improvement, the city state is bracing for a bumpy ride in 2016, economists say.

Reading Time: 2 minutes

Singapore high streetWith Singapore’s economy under pressure from the fallout of China’s contraction and a world market that shows little signs of improvement, the city state is bracing for a bumpy ride in 2016, economists say.

This notion comes after Singapore’s GDP expanded by 2.1 per cent in 2015, in line with the government’s official growth forecast and beating analysts’ expectations, the Ministry of Trade and Industry announced on January 4.

For 2016, the GDP growth forecast is “close to 2 per cent”, while private sector economists had expected growth to come in at 1.9 per cent, according to the latest quarterly poll by the Monetary Authority of Singapore in December 2015.

However, senior economist of DBS bank Irvin Seah noted that despite beating expectations, overall GDP growth was at its slowest in six years. Risks also remain with the potential capital flight that could result from further US interest rate hikes and fears of further deceleration in the Chinese economy, he said.

In detail, Singapore’s manufacturing sector contracted by 6 per cent in the fourth quarter, extending the 5.9 per cent decline in the previous quarter. The sector was primarily weighed down by a decline in the output of the electronics, transport engineering and precision engineering clusters. On a quarter-on-quarter basis, the sector contracted 3.1 per cent, following the 3.5 per cent contraction in the previous quarter.

The sector remains “the weakest link” for Singapore’s economy, Seah said. “Both cyclical and structural challenges are dampening the growth prospects of this sector. External competition, rising business costs and weak external demand were key challenges facing the manufacturing sector for the past years.”

The construction sector expanded by 2.2 per cent, up from the 1.1 per cent growth recorded in the previous quarter, with growth supported by a pick-up in public sector construction activities, the ministry said. On a quarter-on-quarter basis, the sector expanded by 7 per cent, a reversal from the 4.9 per cent contraction in the preceding quarter.

The services industries posted year-on-year growth of 3.2 per cent in the fourth quarter, easing slightly from the 3.4 per cent growth in the previous quarter. Growth was supported mainly by the wholesale and retail trade, and finance and insurance sectors. On a quarter-on-quarter basis, the services producing industries expanded 6.5 per cent, an improvement from the 2.9 per cent expansion in the previous quarter.

“Singapore, I think, will be particularly challenged because in addition to the overall macro global outlook, we’re trying to do two things,” said DBS CEO Piyush Gupta, who was speaking at the DBS Private Banking Outlook for the first half of 2016 on January 6.

“One, we’re trying to deflate parts of the economy, particularly the housing market, including consumer demand. Secondly, we’re trying to restructure the supply side through the labour crunch, land… This is not an easy transition for us. So I continue to think this is the trickiest and most sensitive time in Singapore’s economic transformation that we’ll see for a long time,” he added.

Gupta said China continues to be a “key market to watch.” The country is Singapore’s largest trading partner, and its slowing economy has put investors on edge.

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