UOB, RHB keeps growth forecast unchanged following 2.7% GDP expansion in Q1

UOB sees economy growing 2.9% this year, while RHB's estimates at 2.5%.

UOB Global Economics and Markets Research and RHB kept their 2024 growth forecasts for Singapore unchanged as interest rates will likely stay elevated for longer than anticipated.

Economists at UOB said they still expect GDP to increase 2.9% for the entire 2024, at the higher end of the 1% to 3% official estimate by the Ministry of Trade and Industry (MTI).

RHB acting group chief economist Barnabas Gan also kept his forecast untouched at 2.5% for the year, after official data showed the economy rose faster at 2.7 percent year on year in the first quarter from the 2.2% YoY growth in the fourth quarter.

UOB said tight external financial conditions and high interest rates do not bode well for export-oriented Singapore, particularly in its manufacturing, wholesale trade, transportation and storage sectors.

A meaningful recovery for these industries will only be possible should the US Federal Reserve or the European Central Bank start bringing policy rates down.

RHB shared the same view, noting that the city-state’s financial conditions at home will remain constrained if borrowing costs stay “high for longer” due to the rather slow easing of global inflation. 

Singapore’s expansion will also depend on the recovery of China, and any downturn or other risks in the mainland could hurt Singapore’s externally-oriented industries.

“The delay in global disinflation momentum and a resilient economic backdrop will likely persuade the Monetary Authority of Singapore (MAS) to keep its policy parameters unchanged in 2024,” Gan said in the note.

READ MORE: MTI maintains 1%-3% growth forecast 

Meanwhile, UOB said that the economic boost from tourism-related sectors like accommodation, food and retail will likely moderate for the rest of the year on the lack of blockbuster events like Taylor Swift’s concert, as well as the waning pent-up travel demand.

“Base effects continue to remain favourable in 2Q while growth momentum could strengthen in 2H24 driven by the anticipated recovery in externally-oriented sectors as financial conditions gradually ease should central banks in the advanced economies commence their rate cut cycles,” UOB said.