Growth slows down in the face of a full-blown trade war

The worst is yet to come as an­a­lysts warn that the brew­ing Us-china trade war puts Sin­ga­pore’s ex­ports-driven growth prospects in peril.

Singapore Business Review - - CONTENTS -

When Sin­ga­pore re­leased its ad­vance es­ti­mate for GDP growth in the sec­ond quar­ter of 2018, it missed fore­casts as both the man­u­fac­tur­ing and con­struc­tion sec­tors weak­ened, weak­ened, whilst ser­vices bounced back from the pre­vi­ous quar­ter— and the worst is likely yet to come as an­a­lysts warn that the brew­ing Us-china trade war puts its ex­ports­driven growth prospects in peril.

The 2Q18 ad­vanced es­ti­mates, which drew pri­mar­ily from April and May data, showed the Sin­ga­pore econ­omy grew at a slower 1.0% on a quar­ter-on-quar­ter sea­son­allyad­justed ba­sis, com­pared to 1.5% growth in the prior quar­ter. But since the data was col­lected, the trade spat be­tween the two largest economies has es­ca­lated, with the US and China im­pos­ing tit-for-tat tar­iffs on each other’s goods worth $34b on July 6, and the US mov­ing to slap du­ties on an ad­di­tional $200b of Chi­nese goods.

“The out­look is now more un­cer­tain given the lat­est neg­a­tive de­vel­op­ments on the Us-china trade front,” said Ed­ward Lee, chief economist for ASEAN and South Asia at Stan­dard Char­tered Bank in Sin­ga­pore. “We had pro­jected slower growth in H2, but the neg­a­tive trade de­vel­op­ments are in­creas­ing the down­side risks.” He noted that new ex­port or­ders within the PMI read­ings have also de­cel­er­ated.

Whilst Sin­ga­pore’s an­nual ex­ports growth is still hold­ing firm, with nonoil do­mes­tic ex­ports likely to ex­pand 17% in June af­ter a 13% rise in May, ac­cord­ing to Prakash Sak­pal, Asia economist at ING, other elec­tron­ics ex­port-fo­cussed coun­tries in Asia are al­ready feel­ing the trade pinch. “Global de­mand re­mains up­beat but has slowed from the lofty heights en­joyed in 2017 and high base ef­fects are over­stat­ing the slow­down in

2018. The global tech cy­cle, a crit­i­cal driver of Sin­ga­pore’s econ­omy, is on a grad­ual slow­ing path,” Moody’s In­vestors Ser­vices noted. Sin­ga­pore’s trade-re­lated clus­ter—man­u­fac­tur­ing, whole­sale trade, trans­port, and stor­age—ac­counts for nearly half of its GDP. “Height­ened global trade ten­sions, es­pe­cially be­tween the US and China, re­main a down­side risk to the out­look given Sin­ga­pore’s out­size ex­po­sure to global de­mand,” the rat­ings agency added.

Whilst the im­pact of the Us-china trade con­flict re­mains limited so far, an es­ca­la­tion to a full-blown trade war will have se­vere im­pli­ca­tions for the global econ­omy, Ravi Menon, man­ag­ing direc­tor of the Mone­tary Au­thor­ity of Sin­ga­pore, warned in early July. Au­thor­i­ties cur­rently pro­ject full-year GDP growth of 2.5% to 3.5% in 2018.

Menon noted that trade risks stem from Sin­ga­pore’s role as a node in the re­gional elec­tron­ics pro­duc­tion value chain, as well as a hub for air and sea trans­port and fi­nan­cial in­ter­me­di­a­tion ser­vices. “Th­ese are im­por­tant in­ter­me­di­ate in­puts to the main trade flows be­tween the US and its trad­ing part­ners,” he added, not­ing that bi­lat­eral trade be­tween the US and China in­di­rectly con­trib­utes to about 1.1% of Sin­ga­pore’s GDP.

Menon cited other driv­ers for growth such as a re­bound in con­struc­tion in the com­ing quar­ters, as seen in the con­tracts awarded for pub­lic in­fra­struc­ture pro­jects and the pace of pri­vate res­i­den­tial en­bloc ac­tiv­i­ties. He also ex­pects firm labour mar­ket con­di­tions and healthy con­sumer de­mand to sup­port the re­cov­ery in re­tail and food ser­vices.

Au­thor­i­ties cur­rently pro­ject full-year GDP growth of 2.5% to 3.5% in 2018.

Sin­ga­pore econ­omy would slow to 2.5% in 2018

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