'Singapore faces challenging economic outlook, growth will not hit 3.3% until 2018'

Indonesia, the Philippines and Vietnam are less exposed to manufacturing sectors where China has excess capacity.

Singapore's economic growth may not hit 3.3 percent until 2018, a report has said, the latest report that hint the economic softening has legs.

The Institute of Chartered Accountants in England and Wales (ICAEW) said in a report that the island state' domestic non-oil exports are expected to remain subdued over the coming year. This will leave the traditionally exports and trade reliant economy to look at the services sector for growth.

"Singapore is facing a challenging economic environment and we do not expect growth to pick up to the long-run trend rate of around 3.3% a year until 2018," the report says.

ICAEW's latest Economic Insight: South East Asia report points out that the continued weakness in regional trade will cripple the services sector, which has heavy exposure to the oil and re-eports activities.

Singapore's economy is projected to grow at a slow pace of 1.0 to 3.0 per cent in 2016, Trade and Industry Minister S. Iswaran said in February.

Data showed last month Singapore's gross domestic product expanded 2 percent in 2015, compared with 3.3 percent a year earlier, recording the weakest growth since the global financial crisis of 2009.

The ministry had said earlier 2015 growth would be 2.1 percent but a sharp downturn in manufacturing amid a global slowdown drove the growth figures lower

The ICAEW report said Singapore and Malaysia were the two economies in Asia which are the most vulnerable to the weaknesses in China's economy.

"China's economic slowdown is having a significant impact on growth in South East Asia, in part reflecting the importance of regional trade ties," the report said.

China is the largest trading partner for Singapore, Malaysia and Thailand while it is the second-largest trading partner for Indonesia and the third-largest for the Philippines and Vietnam.

Less exposed

The report also says some Southeast Asian countries will be relatively more insulted against a Chinese slowdown than Singapore.

Countries such as Indonesia, the Philippines and Vietnam are less exposed to manufacturing sectors where China has excess capacity, while Singapore, Thailand and Malaysia will be affected more severely.

"A deeper-than-expected slowdown in China will be the key threat to Asean economies, along with more acute financial market volatility and a tightening of financial conditions as industrialised countries normalise monetary policy. This will be particularly painful for countries with high debt levels, the report says.

It says stronger government investment and solid spending by households will support service sector activity, but services related to oil and re-exports are vulnerable to continued weakness in regional trade.