Singapore's weakening economy to bounce back in Q2

A stable currency and sustained spending will prop up the slowing economy.

Singapore GDP growth is set to pick up in Q2 after a dismal start to the year which saw the economy grew by an estimated 1.3% in Q1, according to Fitch Solutions.

Also read: Singapore is 3rd most vulnerable APAC country to Chinese trade decline

The city's broadly stable currency is expected to lend support to the weakening external sector over the coming months especially as the Monetary Authority of Singapore (MAS) has decided to stand pat on monetary policy by keeping the slope, width and centre of policy bands unchanged in its April meeting.

“As such the Singapore dollar’s nominal effective exchange rate (S$NEER) is unlikely to appreciate sharply as it is already trading close to its upper band. The stabilisation of the currency will be a relief for Singaporean exporters as it remains fairly valued at current levels,” Fitch Solutions said in a report.

With the Fed turning dovish, SOR and SIBOR should also remain stable which will provide a boost to the construction sector which witnessed the first quarter of positive growth (1.4%) in Q1 following ten straight quarters of decline.

Moreover, the fiscal stimuli unveiled during the budget address in February will also help in strengthening domestic demand following the government’s generous transfers to citizens.

Also read: Retail sales up 7.6% to $4.2b in January

Beyond the broad range of support committed to the Merdaka Generation, finance minister Heng Swee Keat also announced handouts to the wider population which includes a $1.1b Bicentennial bonus that will be distributed in various forms.

“Given the expansionary fiscal plan, we forecast that Singapore will register a small fiscal deficit in FY2019/20, representing 0.4% of GDP, which will bode well for domestic consumption,” the report added.

Overall, however, the full-year forecast for the Singapore economy remains dismal with Fitch Solutions revising its real GDP growth forecast to 2.2% in 2019 from the previous 2.8%.