Visitors take photographs at Merlion Park as buildings in the central business district stand in the background in Singapore (Photographer: SeongJoon Cho/Bloomberg)

Singapore Posts Solid Growth to Start 2018 Amid Global Risks

(Bloomberg) -- Singapore’s economy remained on solid footing in the first quarter, with the government expressing more certainty of a steady pace in 2018 as global trade risks and tightening financial conditions allow for a patient monetary policy.

Key Highlights
  • Gross domestic product rose at a seasonally adjusted, annualized rate of 1.7 percent from the prior three months, trade ministry said Thursday; Bloomberg survey median was 1.6 percent, while government’s previous projection was 1.4 percent
  • GDP expanded 4.4 percent in the first quarter from the same period in 2017, in line with median estimate

The rate of expansion from a year earlier gave the trade ministry enough confidence to narrow its growth forecast for 2018 to 2.5 to 3.5 percent, from a prior range of 1.5 to 3.5 percent. Manufacturing showed particular strength while construction expanded on an annual basis for the first time in a year.

Steady growth that’s within the government’s forecast range, coupled with data earlier this week showing inflation comfortably within target, should support the central bank’s plans to gradually tighten monetary policy this year. The government remains on guard for negative effects stemming from U.S.-China trade tensions and a global trend of rising interest rates.

“They already got their first tightening in, in April -- I don’t think they’re going to be in a rush,” Selena Ling, an economist at Oversea-Chinese Banking Corp. in Singapore, said of the MAS officials. She sees the chance of further tightening at the October MAS meeting versus a hold in the policy stance as around 50-50, with signs now that Japan and some key economies in Europe could be slowing down.

A surge in electronics demand underpinned the city state’s 3.6 percent expansion last year, but as the export boom starts to moderate, GDP growth is set to ease to a more sustainable pace. The trade ministry expects growth to broaden out to other sectors of the economy this year, even as construction continues to lag.

“On balance, the pace of growth in the Singapore economy is expected to remain firm in 2018, with growth supported primarily by outward-oriented sectors,” the trade ministry said in its statement. Solid growth in electronics and precision engineering clusters, although more moderate this year, will help sustain manufacturing, it said.

While growth has been concentrated in export-related industries, it’s expected to broaden out to domestic-focused sectors this year, such as retail and food services, as the labor market improves, the ministry said. Construction will probably remain lackluster, it said, “as the earlier weakness in construction demand, particularly from the private sector, is expected to continue to weigh on construction activities this year.”

Compared with a year ago, construction fell 5 percent in the first quarter, after contracting 8.4 percent for the whole of 2017. Manufacturing climbed 9.8 percent in the first quarter, while the financial services industry surged 9.1 percent.

Rising trade tensions between the U.S. and China is among the biggest risks to global growth and export-reliant Singapore. In addition, the ministry said the threat to emerging markets from rising U.S. interest rates is a key downside risk.

In a separate release, Enterprise Singapore maintained its forecast for non-oil exports to expand 1 percent to 3 percent this year.

©2018 Bloomberg L.P.

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