Singapore’s GDP growth likely to be slower in 2016

Singapore's GDP growth in 2016 is expected to be slower than 2015's 2% growth. The economy is likely to expand 1.5% in 2016, the weakest since the 2008/09 global financial crisis. The major drag to economy is the manufacturing sector; however, there is a threat that services are also slowing down. Indeed, there is weakness in manufacturing sector, and there is no improvement in its outlook.

With the uncertain global environment and weakness in demand, key electronics cluster is weakening. The oil and gas industry has witnessed drastic consolidation due to decline in oil prices. Also, there has been a continuous increase in manufacturing costs and offshoring of MNCs. Overall, the outlook for manufacturing sector in the medium term is grim.

Even though the services sector has been the main growth factor, risk on the downside is increasing in this aspect. Meanwhile, further volatility is expected to weigh down financial services, which contributed around 34% to the overall GDP in the past three years. The market is continued to be dominated by risk aversion linked with the Fed hike fear and China's economic slowdown. Moreover, loan growth declined in January by 1.2% y/y, the slowest pace since March 2000.

Juxtapose against a likely moderation in intra-regional trade due to slow down in China, the services sector might slow down in the coming quarters. If services drops, the nation's GDP growth will slow down. The economy might enter a "cold winter" might also face the risk of a technical recession.

"We have lowered our full year growth forecast for 2016 to 1.5%, down from the previous forecast of 2.1% (see Chart, bottom of previous page). This implies at least one quarter of GDP contraction", says DBS.