The Singapore economy is projected to expand at a more modest pace this year, against the backdrop of a less favorable external environment.
Citing figures released by the Ministry of Trade and Industry today, the Monetary Authority of Singapore says country registered 0% economic growth on a quarter-on-quarter seasonally adjusted annualized basis in Q1 2016, following the 6.2% expansion in Q4 2015.
While output in the manufacturing sector increased after six quarters of contraction, this largely reflected a temporary ramp-up in pharmaceutical production in January. The performance of the rest of manufacturing and the trade-related services sectors continued to be held down by sluggish external conditions.
Re-export volumes registered sequential contraction on average over the first two months of 2016.
There was also a pullback in financial services activity from the previous quarter, amid the slowdown in bank lending to the region.
In the quarters ahead, subdued growth in Singapore’s major trading partners will continue to pose cyclical headwinds to the external-oriented sectors, according to MAS.
Within manufacturing, the transport engineering and some precision engineering clusters will be hampered by the cutback in oil exploration activities, while the weakness in IT production and its supporting industries will also persist due to tepid final demand and ongoing corporate restructuring.
In comparison, the domestic-oriented sectors should continue to provide some support to the economy, underpinned by sustained demand for healthcare and education services, as well as public infrastructure spending.
The retail and real estate segments, however, are likely to soften as economic sentiment weakens.
Overall, the Singapore economy is likely to grow at a modest pace of 1–3% in 2016, and the level of activity will be slightly below potential.
Meanwhile, the outlook for the global economy has dimmed since October. The pace of expansion in the US economy is expected to be more modest than earlier anticipated on account of weakening investment and exports, even as the strengthening labour market continues to underpin private consumption.
In the Eurozone and Japan, economic activity will be dampened by their appreciating currencies and weak external demand, notwithstanding recent efforts to boost growth through more accommodative monetary policy.
China’s growth momentum is likely to moderate, as its services sector expansion is unlikely to be sufficiently strong to offset faltering industrial activity, amid supply gluts and weak global demand.
The slower pace of growth in the G3 and China will in turn weigh on trade-related activity in the rest of Asia.