SINGAPORE:Singapore has maintained its gross domestic product (GDP) growth forecast for the year at a range of 1 to 3 per cent as its economy grew by 2.7 per centyear-on-year in the first quarter of 2024.
The first quarter growth wasin line with theMinistry of Trade and Industry's (MTI) advanced estimatesand fasterthan the 2.2 per cent growth recorded in the last quarter of 2023.
The 2.7 per cent growth was stronger than the 2.5 per cent forecast by economists in a Reuters poll. It was also the quickest pace in 18 months since the economy grew 4.1 per cent on a year-on-year basis in the third quarter of 2022.
The GDP growth in Q1 2024 was primarily driven by the finance and insurance, transportation and storage and wholesale trade sectors, MTI said on Thursday (May 23).
In the finance and insurance sector, a surge in transaction volumes across most asset classes, improved credit intermediation activity and firm growth from the insurance and other auxiliary activities segments helped see growth of 6.5 per cent year-on-year, an improvement from the 5.4 per cent growth in the preceding quarter.
The transportation and storage sector picked up to 6.8 per cent year-on-year, from 2.8 per cent in the fourth quarter. Contributing factors included robust growth in the air transport segment, with the total number of air passengers handled at Changi Airport during the quarter coming in above its pre-COVID level.
Meanwhile, the water transport segment also expanded, supported by an increase in container throughput and sea cargo handled at Singapore’s ports.
The wholesale trade sector grew by 1.5 per cent year-on-year, faster than the 0.2 per cent growth in the previous quarter.
The fuels and chemicals segment saw increased output in both the petroleum and petroleum products and chemicals and chemical products sub-segments, as well as the “others” segment, which comprises a diverse range of products including metals, timber and construction materials, and household equipment and furniture.
MTI added that "on a quarter-on-quarter seasonally adjusted basis, the economy expanded by 0.1 per cent, moderating from the 1.2 per cent growth in the preceding quarter".
ECONOMIC OUTLOOK FOR 2024
MTI said that theexternal economic environment has remained resilient since theEconomic Survey of Singapore in February 2024.
It pointed to "better than expected" economic growth in the United States and China in Q1 2024 that wasdue largely to stronger-than-expected domestic demand and external demand respectively.
"Growth in regional economies like South Korea and Taiwan was supported by the global electronics recovery, led by strong demand for AI-related chips," said MTI.
Thetrade ministry predicted thatGDP growth in the major economies would "taper gradually in the immediate quarters due to tight financial conditions, before picking up alongside anticipated policy rate cuts later in the year".
MTI said that the US' growth outlookimproved slightly on account of the resilience in its labour market and an AI-led boom in investments.
"However,the robust performance of the US economy in the first quarter, coupled with sticky inflation, is likely to lead to a delay in policy rate cuts by the US Federal Reserve."
Higher interest rates lasting longer will weigh on the US economyin the immediate quarters, before easing monetary policy in the later part of the year supports a pickup in growth, said MTI.
In the Eurozone, investments and industrial activity are expected to remain weak given restrictive financial conditions and sluggish external demand.
On the other hand, consumer spending is projected to see a firmer recovery in the second half of 2024 due to a gradual improvement in consumer confidence and anticipated policy rate cuts by the European Central Bank as inflationary pressures ease, MTI said.
Due to the introduction of more government support measures, China's GDP growth is likely to be stronger than expected.
In particular, its manufacturing investment is expected to remain robust as a result of government support for strategic manufacturing industries and the announced trade-in programme, while infrastructure investment will be boosted by government infrastructure spending.
"In addition, recently-announced property market support measures are likely to help stabilise the property market, which should lead to a modest recovery in consumption in the later part of the year," said MTI.
GDP growth in the majority ofSoutheast Asian economiesis projected to be supported by resilient domestic demand, the continued recovery in tourism demand, as well as a pickup in external demand, it added.
GLOBAL RISKS
The trade ministry said that there are still downside risks in the global economy, pointing togeopolitical tensions in the Middle East and the war in Ukraine, which could disrupt global supply chains and commodity markets.
Additionally, disruptions to the global disinflation process "could lead to tighter financial conditions for longer, and potentially trigger latent vulnerabilities in banking and financial systems".
Vulnerabilities in emerging markets arising from a desynchronisation of their monetary policy cycles with that of advanced economies could lead to greater volatility in capital flows and currency fluctuations, said MTI.
"Against this backdrop, Singapore’s manufacturing and trade-related sectors are expected to see a gradual pickup in growth over the course of the year," it said.
Within the manufacturing sector, the electronics cluster is projected to recover gradually in the coming quarters, supported by demand for semiconductors for end-markets such as smartphones, PCs and AI.
"Growth in the electronics cluster will in turn have positive spillover effects on the precision engineering cluster, as well as the machinery, equipment and supplies segment of the wholesale trade sector."
The chemicals cluster is expected to expand, due in part tocapacity expansions such as that in sustainable aviation fuel.
MTI said that the stronger-than-anticipated recovery in air travel and tourism demand will continue to boost the growth of the sectors relating to aviation and tourism, includingaccommodation, air transport and aerospace, as well as consumer-facing sectors such as retail trade and food and beverage services.
"At the same time, the finance and insurance sector will be supported by higher tourist spending which will benefit the payments segment, as well as the projected peaking of global policy interest rates which will support the banking and fund management segments through higher commissions and fees," it said.
"Taking into account the performance of the Singapore economy in the first quarter, as well as the latest global and domestic economic developments, the GDP growth forecast for Singapore for 2024 is maintained at 1.0 to 3.0 per cent."
