Singapore's small, trade-dependent economy is going through a protracted cyclical downturn and is not expected to pick up significantly next year, the country's central bank said.
The global economy is likely to expand at a "steady but mediocre pace" in 2017 and, on the back of this, demand remains uneven across Singapore's key export markets.
This means trade-related sectors will continue to struggle, the Monetary Authority of Singapore (MAS) said in its twice-yearly macroeconomic review released yesterday.
This has been further compounded by Singapore's exposure to some of the hardest-hit sectors, such as oil and gas, semiconductors and transport services.
The weak trade outlook means that growth in 2017 will depend largely on its domestically-oriented industries and the services sector, the MAS added.
Financial services - which dragged down growth in the services sector in previous quarters - should experience some recovery.
Government spending on information and communications technology initiatives, a stream of public infrastructure projects and robust demand for essential services, such as healthcare, should also provide some support to the economy.
Government forecasters expect economic growth to come in at the lower end of 1 to 2 per cent this year, and only slightly higher in 2017.
The review also noted that global growth is expected to come in at 3.7 per cent this year, and edge up slightly to 3.8 per cent next year, as business investment in major economies stays sluggish due to elevated economic uncertainty.
The outlook for Asia is stable but will be "sub-par" compared with the period before the global financial crisis, the MAS said.
The central bank added that business sentiment in Singapore remains poor, especially among small and medium-sized enterprises.
"While there was no evidence of widespread consolidation among firms, the subdued business environment could be taking a significant toll on smaller domestic corporates," the MAS noted.
DBS economist Irvin Seah said the outlook "will remain downbeat" but is unlikely to deteriorate sharply.
Risks remain in the economies of major trading partners such as China and the euro zone, and while the United States economy is showing signs of improvement, it will take time for this to translate into real demand for Singapore exports, Mr Seah added.
This means that the slowdown is likely to be long-drawn, making the health of the labour market a key concern for policymakers.
"In terms of monetary policy we have already done what needs to be done. The focus should shift towards the fiscal response," he noted.
The upcoming 2017 Budget is expected to "provide more support to companies to mitigate further retrenchments, and support retrenched workers", added Mr Seah.
This article was first published on October 26, 2016.
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