Singapore MTI lowers 2016 GDP forecast on subdued global growth outlook, concerns over Brexit

Singapore’s economy expanded 2.1 percent year-on-year in the second quarter, unchanged from the previous quarter. On a sequential basis, the economy grew 0.3 percent, as compared with the 0.1 percent growth recorded in the first quarter. However, the quarter-on-quarter growth came in weaker than consensus expectations of 0.8 percent.

The Ministry of Trade and Industry Singapore lowered the 2016 full year growth outlook to one percent to two percent from its earlier projection of 1 percent-3 percent. The MTI cut the projection due to additional risks after Brexit and a subdued global growth outlook. According to the ministry, there is the likelihood that China’s debt defaults might rise sharply as the economy continues to restructure, resulting in a tightening of financial services and a sharper deceleration of growth.

Furthermore the warning was that the narrowed projection was “barring the full materialization of downside risks”. In the second quarter, Singapore’s manufacturing sector grew 1.1 percent on an annual basis, as compared with the decline of 0.5 percent in the first quarter. But the ministry believes that the improvement in manufacturing might not be sustained given the subdued global demand.

Also, the MTI projects growth in construction to soften in quarters ahead in the midst of a more negative business outlook. However, tourism-related sectors might provide support given healthy visitor arrivals, according to the ministry. In the second quarter, construction slowed to 3.3 percent on an annual basis from 4 percent in the previous quarter. The construction sector was weighed down by a drop in private sector construction works.

However, OCBC Economist stated in a research report that the Singaporean economy is projected to grow 1.8 percent year-on-year in 2016 for now as the slowdown in the second half might be restricted to about 1.5 percent year-on-year.

“The 1-2 percent official growth forecast revision is slightly more bearish than what we anticipated given 1H growth is already 2.1 percent yoy and 2H growth would have to potentially slip to zero for the full year to hit the lower 1 percent floor of the revised official forecast range”, added OCBC Economist.