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9 July 2015
Economics
Uncertainties in the global economy and domestic restructuring continue to weigh on growth
The labour crunch has further compounded the problem, limiting
companies ability to grow
Loan growth has dipped into the red and the negative output gap has
continued to widen. Both will put downward pressure on growth and
inflation
We now expect 2.4% GDP growth in 2015, the slowest in six years
Singapore will celebrate its 50th year of independence next month. Despite the
upbeat mood, the weak global economy and drag from domestic restructuring
continue to weigh on growth. Advance GDP estimates for the second quarter
due next week will likely show a contraction of 2.0% QoQ, saar (+2.1% YoY).
We have revised down our 2015 growth forecast to 2.4% from 3.2%. This will
be the slowest growth since the US / global financial crisis of 2008/09.
External slump
Manufacturing remains the weakest link. Output probably fell by 5.3% YoY in
2Q15, twice as much as the 2.7% contraction in Q1. A confluence of factors are
weighing on the sector (Chart 1).
External headwinds remain strong. Exports to the top 3 markets the US, Eurozone and China may have bottomed but a pick-up remain elusive (Chart
2). US recovery remains tepid. The Grexit malaise infecting the Eurozone could
proved protracted. And Chinas economic slowdown, coupled with the recent
Chart 1: NODX and manufacturing in doldrums
% YoY
35
NODX
IPI
25
15
5
-5
-15
-25
Latest: May15
-35
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
9 July 2015
10
EU
China
8
6
4
2
0
-2
-4
-6
-8
Jan-13
Latest: May15
Jul-13
Jan-14
Jul-14
Jan-15
equity market rout and sluggish real estate sector, could have a lasting impact
on Singapore given that it is Singapores largest export market.
Domestically, the labour crunch and rise in production costs owing to restructuring have compounded growth concerns. Absent a stronger recovery in the
US, the outlook for Singapore manufacturing is more half empty than half full.
60
40
Services
20
Construction
0
Manufacturing
-20
-40
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
9 July 2015
40
35
30
25
20
15
10
5
Latest: May15
0
-5
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
The manpower curbs have impeded companies ability to grow in the nearterm. Tightening in the foreign worker Dependency Ratio Ceilings (DRCs) in
past years has restricted employers from hiring more low-wage foreign workers unless they hire more locals. With the local labour supply pool nearing its
peak, companies are unable to hire more even if they are willing to do so. This
is a self-imposed supply-side constraint that has put a heavy lid on growth.
There are other signs of deceleration in growth. Loan growth slipped into the
red for the first time since the US / global financial crisis (Chart 4). Overall loan
growth registered -0.1% YoY in May, the first decline since Oct10. Business loan
growth has recorded two consecutive months of decline and consumer sentiment is cooling as well.
Beyond the weak global outlook, pressure from domestic restructuring, property market cooling measures and risk of higher interest rates are weighing on
business confidence and consumer sentiment. These present further downside
risks to growth.
The negative output gap continues to widen (Chart 5). Slack in the economy
has already pushed core inflation to near zero at 0.1% YoY, from 0.4% in
Chart 5: Output gap turning more negative
% YoY
5
Output gap
% YoY
3.5
3
2.5
1
1.5
-1
-2
Latest: 1Q15
-3
0.5
0
1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15
9 July 2015
15.2
14
12
10
8
6.2
6
3.4
4.4
2.9
2.4
2
0
2010
2011
2012
2013
2014
2015f
April and 1.0% in March. The decline in core inflation goes hand-in-hand with
the widening (negative) output gap, both of which underscore the deceleration in growth.
The outlook for the year remains cloudy. Interest rate expectations will swing
and currencies will be volatile given the risks in the global economy and the divergence in monetary policy directions. Domestic restructuring and the resulting labour shortage will weigh on growth. Beyond what we now expect will be
the slowest growth in 6 years (2.4% in 2015), we have also cut our forecast for
2016 growth to 2.9%, from 3.5% previously.
Notes:
[1] See also SG: watch core inflation dated 16 Jun15.
9 July 2015
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