Economists raise Singapore’s 2024 GDP forecasts on better-than-expected H1 growth, broadening recovery

AFTER Singapore’s growth surpassed consensus expectations in the second quarter of 2024, economists are optimistic about prospects, with several upgrading their full-year forecasts. This is after some – including Maybank and OCBC – had also raised their forecasts after Q1 advance data was released in April.

Gross domestic product growth stood at 2.9 per cent on year in the second quarter, comparable to the upwardly-revised growth rate of 3 per cent in the previous quarter, going by advance estimates from the Ministry of Trade and Industry (MTI) on Friday (Jul 12).

On a seasonally adjusted, quarterly basis, GDP rose 0.4 per cent, up from 0.3 per cent previously. Year-on-year growth beat economists’ expectations of 2.7 per cent in a Bloomberg poll, while quarter-on-quarter growth was in line with their forecast.

Upbeat H2

“Singapore’s economic growth prospects are looking brighter in 2024 after experiencing a soft patch in 2023,” said DBS economist Chua Han Teng.

DBS raised its 2024 growth forecast to 2.7 per cent, from 2.2 per cent, accounting for H1’s growth and the expected further pick-up in the later half of this year.

OCBC chief economist Selena Ling noted that growth momentum may see some pullback to around the low 2 per cent handle due to base effects. But she also upgraded her full-year GDP growth forecast – to 2.6 per cent from 2.3 per cent previously – to account for the better-than-expected H1 performance.

The Q1 growth figure was revised higher, mainly due to an upward revision for the services sector, she added.

Ling noted improvements in the external economic environment, due to the global soft landing narrative and expectation of the US Federal Reserve easing monetary policy soon.

But the November US presidential election is a key risk, she warned, due to increasing doubt over incumbent Joe Biden’s candidacy.

“The market may be anticipating what another Trump term may herald for the global economy, and in particular for China,” Ling said, adding that this may lead to some potential front-loading in trade, exacerbated by current shipping challenges.

“This may ironically be a tailwind for H2 2024 manufacturing and trade for the region,” she said.

Given the “broadening growth recovery”, Maybank also raised its full-year GDP forecast from 2.4 per cent to 3 per cent.

“The timely semiconductor and electronics sector recovery is helping to offset slower services growth as the boost from the revenge spending and travel dissipate,” said Maybank economists Chua Hak Bin and Brian Lee.

Their new prediction meets the upper bound of MTI’s current forecast range of 1 to 3 per cent. The pair expect MTI to upgrade its official forecast to between 2.5 and 3.5 per cent in August, when the final Q2 GDP is released.

Other economists that did not bump up their forecasts were generally still upbeat on Singapore’s growth prospects.

RHB’s acting group chief economist Barnabas Gan and associate research analyst Laalitha Raveenthar expect growth momentum to accelerate in H2, translating into a full-year growth of 2.5 per cent.

The duo identified three reasons for their prognosis: resilient global GDP growth led by the US and China, possible risk-taking and investment flows into Asean on a potential Fed rate cut; and lower producer and import prices and supported real rates in Singapore due to lower inflation pressures.

But they also warned of “some idiosyncratic risks from Singapore’s key trading partners across Asean” and risks that Fed rates may remain high or even be hiked next year, contrary to their expectations of a cut.

UOB associate economist Jester Koh agreed that externally oriented sectors could chart a more meaningful recovery in Q4 if advanced economies’ central banks begin or continue to lower policy rates, potentially stimulating investment and consumption activity abroad, even as he warned that tight financial conditions from elevated US or European Union countries’ interest rates could temper near-term improvement.

He maintained his 2.9 per cent growth forecast for 2024, and noted that growth momentum strengthened in Q2.

Meanwhile, economists expect moderating growth in tourism-related sectors, on dissipating post-pandemic tailwinds and increased competition, particularly from countries with weaker currencies. Economists agreed that the Monetary Authority of Singapore is likely to maintain its current monetary policy parameters in the upcoming review.

Manufacturing turnaround

Manufacturing grew 0.5 per cent year on year in Q2, reversing from Q1’s 1.7 per cent fall.

Maybank’s team expects the biomedical cluster – which recorded contraction – to normalise in H2, and the electronics cluster to “gather steam” and lead manufacturing recovery. DBS’ Chua agreed: “Electronics is catching up, after correcting in Q1 2024.”

Construction gained 4.3 per cent year on year, up from the 4.1 per cent rise in the preceding quarter, supported by an increase in public-sector construction output.

Slowing services

“Services outperformance is giving way to the manufacturing recovery,” said OCBC’s Ling. Overall services year-on-year growth slowed to 3.3 per cent in Q2, from 4.3 per cent in Q1. It was flat sequentially, declining from Q1’s 2.2 per cent growth.

Within services, growth for the wholesale and retail trade sector, along with the transportation and storage sector, moderated from Q1 to 2.5 per cent on year.

The group of services sectors comprising information and communications, finance and insurance, and professional services expanded 5.6 per cent year on year, marginally lower than in Q1.

Growth for the remaining group of services sectors – accommodation and food services, real estate, administrative and support services, as well as other services – came in at 1.9 per cent on the year, slowing from 3 per cent in the preceding quarter.

This group of services sectors collectively contracted 0.5 per cent on a sequential basis in Q2, versus the 2.3 per cent growth in the prior quarter. The pullback was due to a spate of high-profile concerts in Q1 that could not be repeated, DBS’ Chua and OCBC’s Ling noted.