Multiple headwinds plague Singapore despite unexpected growth uptick

Don’t pop the champagne just yet.

Singapore took experts by surprise after its economy expanded at an unexpected 5.7% quarter-on-quarter in the last three months of 2015. However, analysts warn that the surprisingly strong growth is unlikely to continue, and that the city-state’s economy will remain stuck in the doldrums in 2016.

In particular, continued weakness in the manufacturing sector will keep a lid on growth this year, coupled with escalating uncertainty brought about by a slowdown in global economies.

“Although the economy has ended 2015 with a fairly healthy growth pace in the fourth quarter, overall GDP growth is still the slowest in six years. Moreover, risks remain in the horizon with potential capital flight that could result from further US rate hikes and / or fears of further deceleration in China,” DBS noted in a report.

“Going forward, growth outlook in the next 6-9 months will remain tepid before an improvement in the later part of 2016 can be expected. This should bring overall GDP growth for 2016 to 2.1%,” DBS added.

Meanwhile, HSBC noted that the pick-up in 4Q momentum is unlikely to be sustained into 2016, but does set up a better starting point for growth this year. 

“We expect the average pace of q-o-q saar growth to be below 3% this year as manufacturing output is unlikely to pick-up and services industries feel the impact of a slightly more frugal Singaporean consumer. After all, debt servicing costs will likely continue rising in 2016 alongside higher short term interest rates,” HSBC said.

“We forecast growth to slow as the trade cycle remains subdued, higher interest rates percolate through the economy, and the property sector continues to deflate. That said, stable performance from certain services industries coupled with government spending should prevent growth from moderating too much. After an eventful 2015, we forecast the MAS to keep policy unchanged in 2016,” HSBC added.