Singapore’s economy grew at a much slower pace than initially thought in the third quarter, with the government flagging further moderation in the current quarter and warning that the US-China trade war will damage growth in 2019.
The weakening of the outlook for the bustling city-state, which is a bellwether for global growth because international trade dwarfs its domestic economy, emphasizes the shakeout in financial markets in recent months as investors are concerned about world trade, investment and corporate earnings prospects.
The economy grew 3.0 percent in the July-September quarter from the previous three months on an annualized and seasonally adjusted basis, revised final estimates from Ministry of Trade and Industry (MTI) showed on Thursday.
That was way lower than the government’s initial estimate in October of 4.7 percent growth and also a median forecast of 4.2 percent in a survey of 11 analysts. During the second quarter, the economy grew 1 percent.
The weaker than expected economic momentum in the third quarter was largely fueled by slackening in the manufacturing sector. This is a factor that looks set to keep policy markets cautious given the international trade survey that keeps getting worse and the US-China tariff war.
“We did expect industrial production growth to moderate. But the pace of moderation was more prominent that initially thought,” said UOB economist Alvin Liew.
The city-state’s manufacturing sector grew at 3.5 percent during the third quarter from a year ago, slowing steeply from 10.7 percent growth in the quarter earlier.
On a year-on-year basis, gross domestic product expanded 2.2 percent in the third quarter, slower than the advance estimate of 2.6 percent growth, and lower than the 2.4 percent increase forecast in the aforementioned survey.
The MTI revised its estimate for GDP growth for 2018 to 3.0 to 3.5 percent, from 2.5 to 3.5 percent previously. It gave a wide range of 2019’s GDP growth forecast of between 1.5 to 3.5 percent.
“The external demand outlook for the Singapore economy in 2019 is slightly weaker as compared to 2018. At the same time, risks in the global economy are titled to the downside,” said Loh Kuhm Yean, who is the permanent secretary for trade and industry.
Singapore’s policymakers have repeatedly warned that a heated trade war between the United States and China, which is one of the city-state’s major trade partners, could hurt the domestic economy.
“There is the risk of a further escalation of the ongoing trade conflict between the US and its key trading partners, which could trigger a sharp fall in global business and consumer confidence,” added Loh.
The Monetary Authority of Singapore, which oversees policy through changes to the exchange rate instead of interest rates, has tightened monetary settings at both of its semi-annual meetings this year, most recently in October.
Analysts at Capital Economics cautioned of further pressure on the economy from steady interest rate increases by the US Federal Reserve.
“Looking ahead, the outlook for Singapore’s economy will depend in large part on the prospect for the global economy,” they said. “Look interest rates are already at their highest since the global financial crisis and are likely to increase further if the US Fed continues to raise rates, as we expect.”