Singapore: Economic growth revised up but remains muted in Q4; Government presents expansionary budget presents expansionary 2020 budget
February 17, 2020
Detailed national accounts showed that the economy grew at a stronger pace than previously estimated in Q4, with growth revised up to 1.0% year-on-year (previously reported: +0.8% year-on-year). The result was up from the third quarter’s 0.7% expansion. On a quarter-on-quarter seasonally-adjusted annualized (SAAR) basis, the economy grew a revised 0.6% (previously reported: +0.1% SAAR); however, this was down from the revised 2.2% expansion logged in the third quarter (previously reported: +2.4% SAAR). Meanwhile, taking 2019 as a whole, the economy still grew at the previously estimated 0.7%, notably down from 2018’s revised 3.4% increase (previously reported: +3.1% year-on-year).
A stronger service sector (Q4: +1.5% yoy; Q3: +0.8% yoy) buttressed annual growth in the final quarter of last year, while the construction sector firmed (Q4: +4.3% yoy; Q3: +3.1% yoy). However, the manufacturing sector weighed on the economy, contracting 1.3% (Q3: -0.1% yoy) amid the global tech downturn and protracted trade tensions.
Turning to this year, economic growth should rebound from last year’s weak showing on the back of stronger exports and investment as well as government stimulus measures. Yet the balance of risks remains skewed to the downside due to the outbreak of the coronavirus, which will likely weigh on activity by disrupting supply chains, global trade and tourism, even though its precise impact remains hard to quantify. Moreover, developments on the Sino-American trade dispute front will continue to impact the outlook.
On 18 February, the government presented a notably expansionary budget for this year, in response to the coronavirus outbreak and to buttress an economy already under siege from external headwinds. The budget envisages the largest fiscal shortfall in a decade, with the government expecting a deficit of 2.1% of GDP. However, as the accumulated surpluses of previous years should cover the spending extravaganza, the authorities stated that it will run a balanced budget over the parliamentary term nonetheless. Key themes in this year’s budget include support for all households during the coronavirus outbreak through one-off cash payments; a new jobs support scheme and an enhanced wage credit scheme, helping firms to keep employees on board by subsidizing up to 8% of salaries; and the postponement of a goods and services tax, which will not go ahead next year as had previously been planned. All in all, the budget should provide a boost to the economy in the short-term, while measures to bolster the economy’s transformation and growth and educational measures should boost longer-term economic growth.FocusEconomics Consensus Forecast panelists project the economy to grow 1.5% in 2020, which is unchanged from the previous month’s forecast, and 2.1% in 2021. However, the Ministry of Trade and Industry is more cautious and downgraded its economic growth forecast to around 0.5% for this year due to coronavirus.
Author: Jan Lammersen, Economist