Economy to grow 1.7% in 2023; manufacturing, trade to underperform

Manufacturing weakness to spillover to wholesale trade and impact services growth.

Singapore’s economy is expected to grow at only 1.7% in 2023 with manufacturing and trade related services expected to underperform.

DBS Group Research lowered its full-year growth forecast from 2.2% to reflect challenges in soft external demand, high interest rates, and a bumpy post-pandemic recovery in China.

“Our nowcast model estimate for Q2 real GDP growth has shifted down in recent months, mainly reflecting challenges to manufacturing and trade-linked sectors, and risks are to the downside. Advanced economies are still contending with high interest rates, and the positive impact from China’s reopening will take more time to spill over,” according to a report by DBS economist Chua Han Teng, senior FX strategist Philip Wee, and senior rates strategist Eugene Leow.

Headline and core inflation are expected to remain elevated at 5.8% and 4% in 2023, respectively, despite some easing in the second half of the year.

Singapore’s exports and industrial production have shrunk in year-on-year terms for seven straight months since Q4 2022. Weak external demand is constraining a convincing turnaround, the analysts noted.

Manufacturing PMI has also weakened for three straight months as of May 2023, and electronics PMI remains subdued. 

Manufacturers are pinning hopes China’s reopening possibly provide a boost in the coming months. However, China’s factory activity has been into decline since April, compared with expansion of activity reported in Q1.

“China’s post-pandemic recovery is bumpy, despite stronger growth in 2023 vs 2022. Manufacturing is losing steam, while the non-manufacturing and services pick-up has been stronger after the lifting of virus restrictions,” the analysts said.

ALSO READ: Three key factors that will propel SG’s economic growth in H2

Singapore’s electronics exports and production are slumping, similar to global trends. World semiconductor billings have been sluggish as a result of soft demand and high inventories. 

DBS analysts have noted a possible normalisation in billings and pricing recovery during the second half the year amidst AI optimism.

Spillovers from manufacturing weakness to the services sector are mainly to wholesale trade. Modern services are also impacted, as are services growth. Other knock-on impact looks limited, DBS said.

Travel-related services will remain a bright spot. “Tourist arrivals as well as food and beverage services are likely to remain on the recovery path in H2. Further recuperation is likely to be boosted by a bigger influx of Chinese tourists as flight connectivity is restored,” the analysts said.