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.
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