Singapore Upgrades Full-Year Economic Outlook

SINGAPORE—Singapore’s economic outlook seems brighter, as resilience in external demand and a recovery in the key electronics sector helps guard against headwinds elsewhere, the trade ministry said as it adjusted the city-state’s growth forecast for the year.

The Singapore economy grew 2.9% in the second quarter from a year earlier, according to revised data from the Ministry of Trade and Industry released on Tuesday. That matched the advance estimate compiled in July and compared with growth of 3.0% in the first quarter.

For the first half of the year, growth averaged 3.0%, the data showed.

Taking into account the performance of the Singapore economy in the first half, as well as global and domestic economic factors, MTI updated its full-year growth forecast to 2.0% to 3.0% from 1.0% to 3.0%.

Expansion in the April-to-June period was driven mainly by the wholesale trade, finance & insurance, and information & communications sectors, the ministry said. The manufacturing sector—a key engine of the economy—shrank in the quarter, largely due to a sharp fall in the volatile pharmaceuticals segment, the data showed. On the bright side, electronics returned to growth, backed by strong demand for smartphones, PCs and AI-related chips, it added.

“Singapore’s external demand outlook is expected to be resilient for the rest of the year. However, downside risks in the global economy remain,” the MTI said.

How other global trading partners fare is key for the trade-reliant economy of Singapore, which is well-placed to benefit from the global tech cycle upturn but exposed to downturns abroad.

A potential headwind could come from a slight slowdown in the U.S. economy, where MTI expects consumption growth to ease as the labor market softens. Growth in other advanced economies like the European Union and Japan is tipped to pick up, however.

Among Singapore’s major trading partners in Asia, MTI sees a slight slowdown in China in the second half of the year as investment growth tapers but thinks the property market will stabilize as government support measures kick in, boosting consumer sentiment. Growth in key Southeast Asian economies is projected to pick up slightly in the second half of the year as domestic demand strengthens, aided further by recoveries in global electronics and tourism demand.

Risks that could put the brakes on Singapore’s economic momentum include geopolitical and trade conflicts, which could hurt business sentiment and drive up production costs. Disruptions to the global disinflation process meanwhile could lead to higher for longer rates and trigger market volatility, MTI said.

“Against this backdrop, Singapore’s manufacturing sector is expected to see a gradual recovery in the second half of the year,” MTI said, expecting electronics to recover strongly.

Singapore’s GDP grew 0.4% on a quarter-over-quarter seasonally adjusted basis in the second quarter, the revised data showed. That matched both the advance estimate for the quarter, and was steady from the 0.4% expansion seen in the first quarter.

Meanwhile, data in a separate release from Enterprise Singapore showed that the city-state’s total merchandise trade expanded by 10% on the year in the second quarter, surging from the 4.8% growth seen in the first quarter.

Non-oil domestic exports slid 6.4% in the second quarter from a high base a year ago, widening the 3.4% decrease seen in the previous quarter, the data showed. Shipments of pharmaceuticals dragged on the results, but electronics grew for the first time in eight quarters.

Enterprise Singapore expects total trade to be supported by high oil prices, and the electronics recovery in the latter half of the year to boost exports, driven by demand in AI servers and consumer devices. Key downside risks for the NODX forecast remain, including a weaker-than-expected recovery in the final months of the year.

“Taking the above into consideration, the 2024 growth forecasts are narrowed to +5.0% to +6.0% for total merchandise trade and to +4.0% to +5.0% for NODX, from the earlier forecasts of +4.0% to +6.0% for both,” it said.