GDP growth falls more than expected in the first quarter

Economy tallies an unpleasant start to 2025: According to an advance estimate, GDP growth waned to 3.8% year on year in Q1 from 5.0% in the fourth quarter of last year. The reading marked the slowest growth since Q2 2024 and undershot market expectations. On a seasonally adjusted quarter-on-quarter basis, the economy contracted 0.8% in Q1 (Q4 2024: +0.5% qoq s.a.), marking the largest decrease since Q2 2020, when the pandemic hit.

Slower external demand weighs on industrial and services sectors: Looking at the details of the release, the industrial and services sectors were the main culprits behind the year-on-year deceleration. The former grew at a weaker annual rate of 4.7% in the first quarter (Q4 2024: +6.5% yoy) on a sharp slowdown in the manufacturing sector, while the pace of expansion in the latter decelerated to 3.4% (Q4: +4.6% yoy) due to a steep fall in domestic trade growth. Both of them likely felt the pinch of slowing external demand due to mounting global trade tensions. On a more positive note, construction activity growth sped up to 4.6% in Q1, following the 4.4% expansion recorded in the prior quarter, capping the slowdown in the industrial sector; construction activity likely benefited from large projects—including Changi Airport Terminal 5 and major hotel expansions—as well as 150 projects by the Housing Development Board.

Trade frictions to dent GDP growth in 2025: Our Consensus is for the economy to lose traction from current levels through the end of 2025, as the temporary boost provided by front-loading ahead of U.S. import tariffs will gradually fade during the year. Consequently, our panelists forecast economic growth to cool from 2024’s three-year high overall in 2025. Private and public spending will decelerate, hampered by a high base of comparison and a gradual reduction in government cost-of-living support. Moreover, heightened global trade frictions will dent exports growth. That said, fixed investment is expected to pick up, buttressed by laxer monetary conditions and the implementation of the Johor-Singapore Special Economic Zone.

Panelist insight: Commenting on the outlook, Chua Han Teng, analyst at DBS Bank, stated: “Singapore’s external-oriented sectors benefitted significantly from improved external demand in 2H24, which we expect to remain resilient at least through 1H25. However, the full-year outlook faces considerable downside risks, especially from rising geopolitical tensions due to higher tariffs and elevated trade policy uncertainty under Trump 2.0.” Similarly, Jester Koh, analyst at United Overseas Bank, said: “Singapore’s economic outlook hinges heavily on the prospects of a US-China trade de-escalation, with externally-oriented sectors such as manufacturing, transportation & storage, wholesale trade likely to bear the brunt of a negative shock to global trade as was the case during the Trump 1.0 trade war while consumer-facing sectors such as F&B, accommodation, retail could also take a hit should regional and domestic labour market conditions weaken unduly.”

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