Singapore’s 2016 economic outlook faces downside risks; GDP growth likely to contract in Q2

The first quarter GDP growth of Singapore was weak at 0.2 percent quarter-on-quarter, given the global growth headwinds. On a year-on-year basis, the economy had expanded 1.8 percent.

At its April 2016 monetary policy review, Singapore’s central bank adopted a neutral slope for the SGD NEER that was last seen in the post-GFC, noting that inflation had been undershooting expectations and core inflation is expected  to average a tad below 2 percent because of prolonged low inflation globally.

Export and manufacturing growth continued to be depressed, partially because of dissimilar trends of China’s insourcing of intermediate goods and services and weak external demand.

The official growth projection for 2016 continues to be at 1 percent to 3 percent. However, there are risks on the downside and imply that a 1 percent to 2 percent range is more plausible. The official growth forecast is expected to be narrowed to 1 percent to 2 percent year-on-year at a later stage, noted OCBC Bank.

Foreign demand continues to be quite subdued, notwithstanding the recent May NODX blip. In the first quarter, NODX performance was quite weak, contracting 9 percent year-on-year. IE Singapore had also lowered its full year NODX growth projection from 0 percent to 2 percent to negative 5 percent to negative 3 percent as total trade projection is expected to shrink 8 percent to 6 percent in 2016.

With the current slowdown in China and the upcoming US presidential elections in November, the several trade initiatives such as the Trans-Pacific Partnership might not gather momentum in the interim.

“Our NODX growth forecast remains at -4.4 percent yoy, which would mark a 4th year of contraction and further deterioration from 2015’s 0.1 percent decline,” added OCBC Bank.

According to the recent MAS Profession Forecasters Survey, 2016 growth projection has been downgraded slightly from 1.9 percent to 1.8 percent. It has lowered the NODX forecasts to -2.1 percent, and cut CPI projections to -0.4 percent.

Public infrastructure spending continues to be a bright spot that is holding up the public construction activity pipeline. Recovery in visitor arrivals and sustained growth in financial and business services are also the bright spots in the economy.

However, the economic growth in the second quarter might contract on quarterly basis and there is the likelihood of a technical recession occurring in the third quarter of 2016, according to OCBC Bank.