Singapore’s economy is likely to pick up momentum as this year progresses but it hasn’t got off to an ideal start, despite expanding 2.7% in the first quarter of this year over the same period last year.
Total output growth accelerated from the 2.2% rise in the final quarter of 2023 but fell short of expectations of around 3% growth. Added to that is the unexpected decline in exports in March, when non-oil domestic exports fell 20.7% compared with the previous year. Yet, there are reasons for optimism.
The relatively high base in the first quarter last year was bound to make year-on-year comparisons unflattering. Moreover, there were one-off factors that depressed output in some key areas, such as in the biomedical sector. But this sector tends to be volatile and will almost certainly rebound in coming quarters.
The upside
Forward-looking indicators point to an upside in coming months. The latest purchasing manager survey, for instance, showed strength in order books, while manufacturers stepped up procurement of inputs and increased recruitment. The Singapore Commercial Credit Bureau’s Business Optimism Index rose for the third consecutive quarter in the second quarter, with sales volume, net profit, selling price, new orders, and employment levels staying expansionary, while inventory levels fell further. The Economic Development Board Business Expectations Survey showed similar results.
There is more evidence to show that the electronics cycle is recovering
There is more evidence to show that the electronics cycle is recovering. Global electronics producers such as Samsung and TSMC are forecasting strong growth as their order books expand. The trade and industrial production numbers in Korea support this view. As electronics production accounts for around 48% of Singapore’s manufacturing sector, a turnaround here will contribute substantially to higher overall growth.
Consumer spending is also likely to gain more traction. Part of this will come from the continued recovery in tourism, as arrivals from China are set to grow with the new visa-free scheme kicking in. Within Singapore, residents had been weighed down by the decline in inflation-adjusted earnings last year but can look forward to growth in real incomes this year as inflation recedes and wages rise.
The remarkably strong commitments of new foreign direct investment in 2022 and 2023 will support actual capital spending in 2024-25. Major semiconductor companies have announced significant expansion plans, which should materialise as 2024 progresses.
Singapore is seeing some very large public sector projects being implemented
Finally, Singapore’s construction sector is expected to get a boost in 2024. The Building and Construction Academy expects between S$32bn and S$38bn in construction contracts to be awarded this year, driven by both public and private projects. In particular, Singapore is seeing some very large public sector projects being implemented: the massive Changi Airport Terminal 5, the continued development of Tuas Port and the construction of the North-South Corridor expressway.
Open economy
Singapore is a highly open economy, operating in a world that is increasingly subject to geo-political risks, turbulent financial conditions and the uncertain outlooks of some of its major trading partners. In particular, trade being its major engine of growth, the growing tendency for more protectionism and inward-looking policies is a major risk.
Another risk is the lagged effects of the sharp monetary tightening experienced in the past two years. There are concerns that the weight of increasing debt repayments on highly leveraged sectors such as commercial real estate in the US might cause stresses.
Overall, Singapore’s economy should prosper this year. There will be some turbulence due to myriad risk factors, but Singapore’s track record of resilience gives confidence that the city-state will be able to withstand potential downsides.
