Singapore downgrades 2015 growth forecast to 2-2.5%

PHOTO: Reuters

SINGAPORE  - Singapore downgraded its 2015 gross domestic product forecast on Tuesday, and analysts said growth was likely to remain tepid in the second half with the outlook clouded by risks to global economic growth.

Gross domestic product fell 4.0 per cent in the second quarter from the previous quarter on an annualised and seasonally adjusted basis, the Ministry of Trade and Industry (MTI) said on Tuesday.

That was better than the government's advance estimate issued in July, of a 4.6 per cent contraction. The median forecast in a Reuters survey was also for a contraction of 4.6 per cent.

MTI also lowered the upper end of its forecast range for 2015 GDP growth, with the full-year growth forecast revised to 2.0-2.5 per cent from 2-4 per cent previously.

Edward Lee, regional head of research for Southeast Asia at Standard Chartered Bank, said Singapore's GDP growth in the second half will probably be around 2.0-2.5 per cent, broadly similar to growth seen in the first half.

The growth outlook for the second half of 2015 is "still relatively lacklustre," Lee said.

An uneven and sluggish global recovery has dampened growth in Singapore's trade-reliant economy.

The manufacturing sector contracted 18.3 per cent in April-June from the previous quarter on an annualised basis.

MTI said global growth is expected to pick up gradually over the rest of the year, but added that there were some key downside risks, including those related to China, Singapore's biggest market for non-oil domestic exports (NODX). "In China, the recent sharp correction in the stock market have heightened the risks to growth. In particular, consumer sentiment and spending in China could be adversely affected if the correction in the stock market worsens," Ow Foong Pheng, permanent secretary at the MTI, told reporters.

Trade agency International Enterprise Singapore on Tuesday revised its 2015 non-oil domestic exports forecast to growth of 1.0-2.0 per cent from the previous expectations for 1.0-3.0 per cent growth. "The biggest risk to policy now I think, is China," said Vishnu Varathan, senior economist for Mizuho Bank in Singapore, adding that his baseline expectation is that the Monetary Authority of Singapore will keep its exchange-rate based monetary policy unchanged at the next policy review in October.

If there is a sudden, negative shock to China's economic growth and that triggers a large reaction in asset markets, however, the MAS might ease policy by lowering the mid-point of the Singapore dollar's policy band, Varathan said. "At the October meeting we can not rule out that the MAS will ease, but my base case is that they have no fresh reasons to bring out the big guns just yet," he added.