3 reasons why Singapore’s growth momentum will improve in 2H23

RHB expects GDP to grow 2.0% in 2023, a higher estimate than the government's.

Despite the Ministry of Trade and Industry narrowing its 2023 GDP growth forecast, RHB remains positive about Singapore’s growth momentum in the second half of the year.

Barnabas Gan, senior economist of RHB, said there will be three catalysts for why Singapore’s growth momentum will improve in 2H23.

The first catalyst is improving global risk appetite. “Risk appetite may continue to recover on the back of near-peak rates seen in developed markets, with markets likely pricing in some rate cuts into 2024,” said Gan.

Stronger tourism-related indicators also bode well for Singapore, said Gan, adding that the “resiliency of the overall services sector” should continue to support GDP growth.

Lastly, Gan believes the recovering momentum in Singapore’s externally-related data will help improve economic growth.

“Momentum in high-frequency data such as trade and industrial production will improve in 2H23. On the back of today’s GDP data, our view is for the Monetary Authority of Singapore to keep its policy parameters unchanged in October 2023,” Gan said.

Gan, however, warned that there are still downside risks to Singapore’s growth.

“The official downgrade of Singapore’s growth range in 2023 reinforced our downside risk view to our 2.0% annual growth forecast, given the recent momentum decline in both manufacturing and NODX,” Gan said.

“Singapore’s manufacturing activities are an essential proxy for the economy’s health; the economy remains small and open, where IP is primarily determined by foreign demand. Singapore’s total trade % of GDP is one of the highest in the world at 345.5% in 2018 – 2022, whilst manufacturing activities account for a sizable 21.0% of real GDP over the same period. Separately, we continue to look for the services industry to account for the lion’s share of Singapore’s recovery in 2H23, on the back of improving tourism numbers and stronger retail demand over the same period,” he added.