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

Malaysian bank analysts said tourism growth and higher tourism services will help.

Amidst the slow economic growth in the first half, Singapore’s GDP will improve in the second half (H2) of 2023.

RHB said this as it also identified the catalysts that will help improve Lion City's economic growth.

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

“We expect peak FOMC Fed Funds Rate (FFR) at 5.25 – 5.50% in 2023, thus expecting the central bank to raise its FFR rate by 25bps in its upcoming June 25 MPC meeting. Given the slowdown in inflation pressures year-to-date, we also view that the Monetary Authority of Singapore has effectively ceased its tightening cycle,” read the report.

RHB also noted that global equities have recovered year-to-date, suggesting that risk appetite stayed supported given the upside surprises in US economic data.

The next catalyst is the improvement in tourism figures as well as the resiliency of the services sector.

“Inbound tourism arrivals in Singapore crossed the 1 million persons handle in March 2023, the highest since the pandemic,” RHB said.

Improving retail sales is led by discretionary demand such as motor vehicles, durables, and luxury goods. 

Front-loading retail demand and seasonal factors will also drive Singapore’s services sector growth in H2 2023, said RHB.

The last catalyst is the recent high-frequency data, such as trade and industrial production. The data have seen a recovery in momentum.

“Despite seeing an annual decline (-9.8% YoY) in April, SG’s NODX continued to climb sequentially (+2.7% MoM SA). The disconcerting aspect, however, is that electronic exports continue to disappoint (-23.3% YoY), although non-electronic exports are supported by chemicals (pharmaceuticals),” read the statement.

Downside risks

The global external environment continues to remain weak in the remaining months of the year whilst inflation remains sticky.

“Notwithstanding the recovering momentum in several high-frequency indicators, annual declines are still seen in key growth cylinders such as trade and manufacturing,” read the report. 

“This is in line with the continued global external headwinds seen in demand for selected electronic products such as integrated circuits, electronic capacitors, personal computers and general consumer electronics,” it added.

Global-related uncertainties may dampen risk appetite, including the ongoing US debt ceiling negotiations and the slower-than-expected Chinese economic recovery despite the economy’s reopening efforts.