Singapore's GDP to grow by 2.4% in 2019, weighed by external headwinds

Singapore Pixabay

Singapore's GDP is forecast to grow by 2.4% in 2019 from 3.2% in 2018, against a more challenging environment for exports and the manufacturing sector, according to ICAEW's latest Economic Insight: South-East Asia report. Similarly, economic growth across South-East Asia (SEA) region is expected to moderate to 4.8% this year, from 5.1% in 2018, as export growth slows amid increased trade protectionism and slower Chinese import demand.

Economies started the year on a soft note, as a result of the weakness in global economic activity in late 2018. The deterioration in export momentum was broad-based, with only Malaysia recording positive annual growth. While Singapore showed some improvement in terms of exports growth in January, the data is likely to be volatile in Q1 given the timing of the Chinese New Year.

"Looking ahead, we expect the risks to the economic outlook of the region to be primarily to the downside. A sharper slowdown in Chinese economic growth triggered by worsening confidence or a renewed escalation in US-China trade tensions would all affect global trade and growth across the region," said Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist. "As such, we expect GDP growth across the region to moderate to 4.8% this year from 5.1% in 2018 before easing to 4.7% in 2020."

Singapore: Mildly expansionary Budget but external headwinds will weigh heavily on growth

Against a backdrop of moderating economic growth and external risks, the Singapore government announced a mildly expansionary Budget for 2019 with room to intervene should economic conditions worsen sharply. Whilst certain initiatives like the Bicentennial Bonus for low-income individuals are welcome, this is unlikely to lead to any significant bounce in household spending in Singapore this year.

In addition, it is likely that additional risks to growth are posed by Singapore's exposure to China, both directly to domestic demand and via supply chains.

Momentum in domestic demand and household spending to ease

Domestic demand is expected to moderate this year, as a result of sluggish residential investment and rising headwinds facing business investment. Moreover, despite the recent truce in the US-China trade war, trade protectionism is likely to dampen private sentiment and investment intentions, with momentum in corporate profits also forecasts to soften.

A moderate acceleration in employment growth is likely to support wage growth of around 3.7%, similar to 2018. Momentum in household spending is expected to moderate from the strong gains in most of 2018 as higher domestic interest rates and negative wealth effects (associated with the fall in equity prices in 2018) will reduce households' spending power.

On a more positive note, government measures to support businesses and encourage investment, particularly in adapting to Industry 4.0, should continue to back and provide a boost to planned infrastructure investment. This should support investment over the next 18 months.

Mark Billington, ICAEW Regional Director, South-East Asia, said, "The impact of increased trade tensions in the past year and slower Chinese import demand is expected to slow the region's growth as a whole. While the mildly expansionary budget will support growth, we maintain our cautious outlook for Singapore's economy, given the slowdown in global trade and the likely impact on Singapore's manufacturing and externally-dependent service sectors. With all factors considered, we expect Singapore's GDP to grow by 2.4% in 2019, down from 3.2% in 2018."

Other findings in the report include:

  • Indonesia's GDP growth to slow to 5% in 2019 despite expansionary fiscal spending

GDP growth rose in Q4 2018 to 5.2% year-on-year, unchanged from the previous quarter and bringing full-year growth to 5.2%, up slightly from 5.1% in 2017. As anticipated, domestic demand remained the key engine of growth in the quarter although the data was mixed. Consumer spending picked-up slightly, growing 5.1% year-on-year, aided by mild inflation and a healthy labour market. However, growth in government spending and investment slowed amid efforts to lower expenditure and paring down in the pace of infrastructure investment.

Looking ahead, modestly higher inflation and lower planned increases to minimum wages in 2019 are likely to slow real household income growth and consumption growth, offsetting the impact of pre-election giveaways in the 2018 Budget. The outlook for exports remains challenging amid cooling Chinese import demand, import growth is likely to continue to slow this year and net exports are expected to place less of a headwind on growth in 2019.

Overall, Indonesia's GDP growth is expected to moderate to 5% in 2019, from 5.2% in 2018.

The full Economic Insight: South-East Asia report is available at