The Singapore economy grew at a relatively modest rate in 1Q2016 (January to March 2016), with a growth rate of 1.8% year-on-year and 0.2% over the previous quarter.
Manufacturing Sector Shrunk by 1% YoY
Growth was bogged down mainly by the precision engineering and transport engineering clusters.
These 2 clusters were dragged down by poor performance of companies in the oil & gas equipment segment and the marine and offshore segment.
The Construction Sector Grew by 6.2%
Growth in the sector was buoyed by activity in private industrial building works and public sector construction works.
1.8% Expansion in the Wholesale and Retail Trade Sector
In the previous quarter, the growth rate was 6.8%.
The reduced pace of growth in this quarter was due to the wholesale trade segment.
Increase of 1.5% in the Accommodation and Food Services Sector
The better performance can be attributed to a 13.8% increase in the arrival of visitors.
ICT Sector Expanded by 3.2%
The IT & information services segment was mainly responsible for the increase.
2.4% Growth in the Finance & Insurance Sector
The sector’s performance was weighed down by the financial intermediation segment, even as the sentiment-sensitive and insurance segments experienced robust growth.
Outlook for the Economy in 2016
The Ministry of Trade and Industry (MTI) projected a dimmer outlook for the year, mainly due to 3 downside risks:
First, in China, there is a risk that continuing reforms could have the unintended effect of a significant drop in demand. If this happens, China’s economy could slow down sharper than expected. The impact of the slowdown could also be magnified through the financial system, should debt defaults hike up.
Second, is the risk of quicker normalization of monetary conditions in the USA. If this happens, regional countries could face large capital outflows, leading to in pressure on their asset markets and currencies.
Third, in the Eurozone, uncertainty around the referendum in June on Britain’s exit from the EU, i.e. Brexit, could adversely impact sentiment and investor confidence in the region. This will result in lower investment and consumption. The loss of investor confidence amidst heightened political risks could also result in higher debt servicing costs in peripheral economies.
Domestically in Singapore, the poorer global economic conditions, coupled with the continued sluggishness in global trade, could bring down sectors which are externally-oriented, like manufacturing and transportation & storage sectors.
Continued low oil prices could weaken the position for firms in the marine & offshore segment, and those in the precision engineering cluster that support the oil & gas industry.
Sectors such as finance & insurance and wholesale trade could see a moderation in growth compared to 2015.
Tourism-related sectors could see an increase from the recovery in visitor arrivals. The biomedical manufacturing cluster could see growth in production because of the introduction of new active pharmaceutical ingredients.
Considering all the factors mentioned above, the MTI expects the Singapore economy to grow at a rate of 1.0 to 3.0 per cent for the year 2016.