Steady domestic demand to continue driving Singapore’s growth in 2017

The Institute of Chartered Accountants in England and Wales (ICAEW) is forecasting a higher gross domestic product (GDP) growth of 2.7% for Singapore this year, citing improved growth dynamics and the ongoing recovery in global trade.

In its latest Economic Insight: South East Asia report, the institute notes that the outlook for Asean’s economy remains cautiously optimistic as it builds on a positive growth story on the first quarter of the year.

Overall, ICAEW forecasts Southeast Asia to slip back towards 4.5% by 4Q17, with full year GDP growth to come in slightly higher than in 2016.

While Singapore’s 1Q growth contracted 1.3% q-o-q this year, the institute says this is understandable as a pullback from an impressive acceleration growth of 12.3% in 4Q17.

“Moving forward, sectors dependent on external factors can expect a brighter outlook. A modest recovery in business investment may soon be underway, as business loans rose to 8.1% year-on-year in Q1, the strongest growth in loans since 2014,” observes the institute.

It also projects exports growth in Singapore to firm up after April’s low, as the April’s Purchasing Managers’ Index (PMI) was only slightly down from its 26-month high seen in March.

Noting solid new export orders in recent exports data, ICAEW nonetheless cautions of a moderation in Chinese import demand, following the strong bounce in 1Q17, which will see growth in exports easing over the coming quarters.

Meanwhile, the institute says negative wealth effects are likely to keep growth in Singapore’s private consumption and household spending relatively subdued.

This is because sectors dependent on internal factors will require more time to get back on track – as the current unemployment rate in Singapore is only set to improve later this year, when financial services and the oil & gas (O&G) related sectors pick up.

A recovery for falling house prices in the city state is unlikely in the near future given the housing market’s current supply overhang, it adds.

“Following the positive Q1 outcomes, we have increased our growth outlook for some Asian economies, including Malaysia and Thailand. However, we are cautious owing to various restraints on the region’s Q1 boost,” says Priyanka Kishore, ICAEW economic advisor & Oxford Economics lead economist.

“We expect a slowdown in growth momentum under the influence of a widespread slowdown in exports in Asia and despite steady domestic demand – two essential factors underpinning the region’s strong performance earlier this year,” she adds.

Says Mark Billington, regional director, ICAEW South East Asia: “We are confident that an improved external environment will help sustain Singapore’s growth – despite the drag from domestic factors. Moving forward, we expect domestic demand to remain the primary driver of growth. As the recovery in external global trade remains unsteady, we envisage Asean nations using more fiscal stimulus to support domestic demand.”

This article first appeared in The Edge Singapore Market Report.

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