Weak outlook for H2 worsens over trade and production woes

Q2 GDP is forecast to dip to 4.2% from 4.4% in Q1.

The Ministry of Trade and Industry (MTI) will release the advance Q2 2018 GDP report tomorrow. Whilst Singapore’s services sector should help buoy the economy during the period, global uncertainties and lower manufacturing orders could hamper growth, Standard Chartered said.

“The services sector likely continued its recovery, supported by strong regional economic performance and digital transformation, benefitting the financial services and information and communication services sub-sectors. The improving labour market may have also helped support domestic spending,” said Standard Chartered ASEAN and South Asia chief economist Edward Lee.

The economist also noted that manufacturing growth likely eased from the robust 9.8% YoY in Q1 but remained firm. He said industrial production (IP) in April-May 2018 rose 10.1%, but there was an unfavourable base effect in June.

The construction sector, meanwhile, was likely a pocket of weakness as construction payments fell 8% YoY in April-May 2018. However, the decline was the slowest in 18 months, Lee noted.

“Our GDP growth tracker suggests upside risk to our Q2 GDP growth forecast,” he added. “The difference is likely due to our tracker being reliant on more readily available externally-driven activity data, such as IP. Nevertheless, we are cautious about being overly-optimistic, as the recovery in the services sector is still nascent.”

Whilst H1 growth was healthy, the outlook is now more uncertain given the latest negative developments on the US-China trade front. “The US had reportedly initiated the process to impose another 10% tariffs on an additional US$200b of China imports, after the initial 25% on US$50bn of goods (of which tariffs on US$34b have already been implemented),” Lee said.

“We had projected slower growth in H2, but the negative trade developments are increasing the downside risks,” he added. “New export orders within the PMI readings have also decelerated. We had been calling for another 50 bps steepening of the SGD NEER slope in October, but further deterioration on the trade front will increase the risk of a status quo decision.”

As a forecast, Standard Chartered said Singapore GDP is expected to slightly slow down from 4.4% in Q1 to 4.2% in Q2.