Singapore
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Singapore is expected to experience the sharpest economic slowdown in the region, with GDP growth slowing from 3.1% in 2018 to 1.9% this year, according to ICAEW's latest Economic Insight: South-East Asia report. Similarly, economic growth across South-East Asia (SEA) region is expected to decelerate, moderating to 4.8% in 2019, due to weaker Chinese import demand, a slowdown in the global ICT cycle, and an increase in trade protectionism over the past year.

Overall GDP growth across SEA slowed to 4.6% year-on-year in Q1 2019, down from 5.3% recorded in H1 2018. This is a result of the slump in export growth across SEA economies due to weaker Chinese import demand, a slowdown in the global ICT cycle, and an increase in trade protectionism over the past year.

Similarly, the deterioration in export momentum across the region has continued into the second quarter. GDP growth across the region is expected to moderate to 4.8% this year, before further easing to 4.7% in 2020. As a small and open economy that is heavily dependent on exports, Singapore's growth will likely be the most negatively affected. Meanwhile, although growth is set to ease in Vietnam, at 6.7%, this would place it as the fastest growing SEA economy.

"We expect exports and overall economic growth to continue to come under further pressure, as the re-escalation of trade tensions between US and China is unlikely to ease any time soon," said Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist. "With export volumes already on the downside since the start of the year, any further increase in trade tensions between the world's two largest economies will likely see a much more prominent slowdown in regional growth."

Singapore: Growth prospects deteriorate amid challenging the export outlook

GDP growth was revised down slightly to 1.2% year-on-year in Q1 2019 from the advanced estimate of 1.3%. While sequential growth was up by 0.9% quarter-on-quarter, the details were mixed. Household spending remained resilient and non-residential and infrastructure construction was strong, however, growth has eased and demand for durable goods, such as motor vehicles, is particularly weak.

In addition, the impact of weaker global trade and US-China trade tensions are increasingly being felt. Exports were 2.1% lower than a year ago in Q1 2018, while concerns over the outlook for external demand saw investment in machinery and equipment fall and firms opting to reduce stocks. Looking ahead, the outlook for exports is weak, following more tariff hikes by the US and China.

Domestic demand to partly offset the drag on growth

Aided by more accommodative macro policies, domestic demand is likely to provide some cushion to the negative impact of weaker exports. Indeed, a sharp policy reversal by the US Federal Reserve and subdued inflation across the region have opened the door for easier monetary policy across SEA.

In Singapore, the outlook for construction (outside of the residential sector) over the next 18 months is positive, given the continued recovery in non-residential construction and ongoing public infrastructure projects such as the North-South Corridor. However, businesses are likely to remain cautious given the weaker global trade backdrop, resulting in more subdued investments in machinery and equipment moving forward.

Against this more challenging export outlook and benign inflationary pressures, Monetary Authority of Singapore (MAS) is likely to remove some of last year's appreciation bias in its SG$NEER, a trade-weighted basket of currencies against the Singapore dollar. As such, the USD/SGD is expected to end 2019 at around 1.37, which is consistent with the SG$ moving towards the centre of its policy band.

Mark Billington, ICAEW Regional Director, Greater China and South-East Asia, said, "Renewed trade tensions between the US and China come at a time when export growth across the region is already facing a difficult external environment. With its links to China and dependence on exports, we expect Singapore to experience the sharpest slowdown in GDP growth across the region, with its economy likely to dip into recession in 2020 should external conditions further deteriorate."

Other findings in the report include:

  • Vietnam's GDP to grow by 6.7% in 2019, supported by FDI and healthy domestic demand

Economic momentum moderated to 6.8% year-on-year in the first quarter of 2019, below the 7.3% increase in Q4 2018. While the rest of the SEA economies have recorded sharp falls in exports, Vietnam's merchandise exports in US$ terms were 10.4% higher than a year ago in April. Despite an increase in exports, momentum is expected to trend lower given weaker Chinese import demand and increased trade protectionism. While trade diversion from the re-escalation of US-China trade tensions may temporarily benefit Vietnam, the country is still highly exposed to China.

On the other hand, foreign direct investment (FDI) and manufacturing production are expected to remain significant drivers of growth. FDI inflows will likely remain strong over the medium term due to its close proximity to China and positive labour dynamics, including low relative wages. Vietnam's infrastructure metrics are improving and its participation in trade agreements, notably as part of ASEAN, and policies to attract foreign direct investment are also favourable.

Domestic demand will also continue to remain healthy during 2019-20 with household spending remaining solid amid stable inflation and rising incomes, while sustained tourism should support the service sector. Overall, Vietnam's GDP is forecast to grow by 6.7% this year, with a modest deceleration over 2020-21 to 6.1% per annum.