Singapore narrows 2024 growth forecast to 2-3%, upper end of range

SINGAPORE — Singapore’s economy is now forecast to grow at the high end of the official forecast range in 2024, with external demand expected to be resilient for the rest of the year, although global downside risks persist.

The Ministry of Trade and Industry (MTI) on August 13 narrowed its growth forecast for 2024 from 1-3 percent to 2-3 percent.

According to MTI, the calculations take into account the economic situation in Singapore in the first half of 2024, as well as the latest data on the economic situation in the world and in the country.

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Singapore’s gross domestic product growth averaged 3 per cent year-on-year in the first half of 2024.

MTI’s narrowed forecast for 2024 is in line with that of the Monetary Authority of Singapore, which said on July 26 that GDP growth would likely approach a potential 2%-3% rate for the full year.

MTI Chief Economist Yong Yik Wei told the media that barring downside risks globally, economic growth is expected to remain at its current rate of around 2-3 percent in the medium term until around 2033.

This is in line with Prime Minister Lawrence Wong’s statement in the February budget, in which he said Singapore aims to achieve average annual economic growth of 2-3 per cent over the next decade.

The economy grew 2.9% in the second quarter, unchanged from MTI’s estimate released a month ago. That follows growth of 3% in the first quarter, the fastest pace since a 4.2% expansion in the third quarter of 2022.

On a quarter-on-quarter, seasonally adjusted basis, the economy grew by 0.4 percent, in line with preliminary estimates and in line with growth in the first quarter.

According to MTI, growth in the second quarter was mainly driven by the wholesale trade, finance and insurance, and information and communications sectors.

However, the manufacturing sector has contracted, largely due to a decline in biomedical production amid a sharp decline in pharmaceutical production.

The key electronics sector returned to growth, supported by strong demand for smartphones, personal computers and artificial intelligence-related chips, although demand for automotive and industrial chips remained weak.

Meanwhile, customer-facing sectors such as retail and food services declined, partly due to an increase in international travel by residents.

MTI says that overall, Singapore’s external demand outlook is expected to remain stable until the end of 2024.

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Gabriel Lim, MTI permanent secretary for policy, said: “While GDP growth in the US and China is expected to gradually slow, GDP growth in the eurozone, Japan and key Southeast Asian economies is expected to improve.”

China’s economy is expected to grow at a slightly slower pace in the second half of 2024 as investment momentum slows amid signs of overcapacity in some sectors.

Despite all this, MTI states that with the introduction of government support measures, the housing market situation is likely to stabilise and consumer sentiment should start to improve.

Growth in key Southeast Asian economies is also expected to accelerate slightly in the second half of 2024, driven by rising domestic demand and an ongoing recovery in global demand for electronics and tourism.

“Nevertheless… downside risks to the global economy remain,” Lim said.

MTI said the escalation of geopolitical and trade conflicts could weaken business sentiment and increase production costs, which could negatively impact global trade and economic growth.

Disruptions to the global disinflation process could also tighten financial conditions for a longer period and trigger market volatility or hidden weaknesses in banking and financial systems, it added.

As a result, Singapore’s manufacturing sector is expected to begin a gradual recovery in the second half of 2024.

In particular, the electronics industry is expected to rebound stronger, supported by strong demand for chips for smartphones, PCs and AI. This in turn will boost the precision engineering industry.

The chemical industry is also expected to continue to grow, thanks in part to increased production in the petrochemical and specialty chemicals sectors.

In turn, biomedical production is likely to contract, with pharmaceutical production remaining weak until the end of 2024.

Brian Tan, senior regional economist at Barclays, said: “We continue to expect a relatively gradual – not strong – recovery in the manufacturing sector, although the results are likely to remain uneven and lumpy.

“In particular, we maintain our view that the technology cycle is expanding beyond North Asia, where the AI ​​boom has largely occurred.”

MTI said the projected recovery in the manufacturing sector, especially the electronics sector, should benefit trade-related services sectors, such as the machinery, equipment and materials segment in the wholesale sector.

MTI added that the continued recovery in demand for air travel and tourism will support growth in sectors linked to tourism and aviation, such as accommodation and air transport.

Growth in the finance and insurance sector should also remain strong as interest rate cuts continue to be implemented across the world amid ongoing disinflation, it noted.

OCBC chief economist Selena Ling added that analysts maintain their full-year 2024 growth forecast of 2.6%, which is closer to the upper end of the official growth forecast, “amid recent signs of recovery in the global technology industry and relatively resilient growth in the construction and services sectors.”

“Growth momentum in the second half of 2024 should improve as the tech recession widens, benefiting manufacturing and financial sectors, while domestically-oriented sectors should return to pre-COVID-19 levels,” she added.

DBS economist Chua Han Teng also noted that Singapore’s improved economic growth in 2024 is due to a recovery in labour productivity.

“The recovery in labour productivity will help ease pressure on domestic labour costs, which has been a major concern for Singapore businesses over the past two years, in 2022 and 2023.”

He added that wage growth is likely to be limited and that overall there should be less pass-through of business costs to consumer prices.