Singapore’s 2Q GDP growth disappoints as construction slumps

SINGAPORESingapore’s economy grew at a slower pace in the second quarter (2Q) than initially projected as construction plunged.

Key Highlights

Gross domestic product (GDP) rose at seasonally adjusted, annualised rate of 0.6% in 2Q from prior three months, trade ministry said on Monday; Bloomberg survey median was 1.4%.

Government’s previous projection was 1%; growth eased from 2.2% in 1Q. GDP expanded 3.9% in 2Q from same period in 2017, versus survey median of 4.1%.

The export-reliant city state was already facing a high bar for growth this year following a boom in electronics demand in 2017 that fuelled global trade. After last year’s expansion of 3.6%, growth is set to moderate to a range of 2.5% to 3.5% in 2018, a forecast that the government retained yesterday.

External risks are now building as regional supply chains come under strain because of a US-China trade war, oil prices remain elevated and the dollar strengthens.

While the direct effect of higher US tariffs on Singapore’s exports was small, the trade conflicts could hurt global trade flows and growth if they escalate, the Trade Ministry said.

“There is a risk of a further escalation of the ongoing trade conflicts that could lead to a vicious cycle of tit-for-tat measures between the US and other major economies,” the ministry said. “Should this happen, there could be a sharp fall in global business and consumer confidence, and in turn, investment and consumption spending.”

Another external risk is rising US interest rates and the knock-on effect on emerging-market economies in the region if the US Federal Reserve tightens policy faster than expected. The ministry said if this occurs, there could be a pullback in investment and consumption, which could hurt growth in the region.

Domestically, the government expects a moderation in growth in the second half, with exports and manufacturing continuing to underpin the economy’s expansion, although at more subdued levels.

The construction industry, which was weighed down last quarter by public sector projects, will remain lacklustre after additional property curbs announced last month crimps activity.

Policy Move

The growth slowdown was anticipated and inflation pressures are seen persisting, Jacqueline Loh, deputy MD at the Monetary Authority of Singapore (MAS), told reporters on Monday.

The MAS tightened policy in April and is scheduled to make its next decision in October.

Other details from the GDP report:

• The services industry, which makes up about two-thirds of the economy, expanded annualized 0.4% in 2Q from prior three months.

• Manufacturing growth eased to 1.8%, while construction plunged 15.4%.

In a separate release, Enterprise Singapore raised its forecast for non-oil exports this year to 2.5% to 3.5%. — Bloomberg