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Nikkei Markets

Singapore's slowing growth draws warning about manufacturing

Quarterly pace is slowest in more than two years

Singapore's MTI warned that the manufacturing sector was likely to see a "significant moderation" in growth.   © Reuters

SINGAPORE (Nikkei Markets) - Singapore's gross domestic product grew much slower than expected in the fourth quarter, raising the odds of an expansionary budget as the government warned of greater uncertainty in the global economy.

The Ministry of Trade and Industry said that GDP increased by 1.9% year-on-year in the last three months of 2018, well below the third quarter's 2.4% and its advance estimate of 2.2%.

That's the slowest on-year pace since the third quarter of 2016.

MTI also warned that the manufacturing sector was likely to see a "significant moderation" in growth. Although it kept its growth outlook for 2019 in the range of 1.5% to 3.5%, the figure could come in "slightly below the mid-point," MTI said.

"There is a general sense that the Singapore economy has slowed down in the past few months...This trend looks to persist with both manufacturing and services firms looking gloomier about the next six months," said Brian Matthew Ho, associate director at Synergy Financial Advisers, citing recent surveys by government agencies.

Friday's GDP figures are the latest sign of weakness in Southeast Asia's wealthiest economy, which is heavily dependent on international trade. Earlier this week, Singapore said retail sales fell 6.0% in December from a year, pushing overall retail sales down by 0.7% for the whole of 2018, the first annual contraction since 2013.

MTI warned that in particular, the electronics and precision engineering clusters would face external headwinds as global demand for semiconductors and semiconductor equipment weakens with the fading of the electronics cycle.

Growth in outward-oriented services sectors such as wholesale trade, transportation and storage and finance and insurance is also expected to ease in tandem with the moderation in key advanced and regional economies, the ministry added.

Singapore's trade-oriented services sectors were hit by the slowing global economy and disruptions from the U.S.-China trade war in the fourth quarter, said Chua Hak Bin, an economist at Maybank Kim Eng in Singapore.

Chua added that the 2019 budget, to be announced on Monday, would likely be generous and expansionary with help for smaller businesses and citizens, setting the stage for a possible general election later this year.

Ho of Synergy Financial Advisers said a key element of the upcoming budget would be a package of measures to help older Singaporeans cope with rising healthcare costs, a major concern for many.

MTI data showed that the manufacturing sector grew by 5.1% on year, higher than the 3.5% expansion seen in the third quarter. But on a quarter-on-quarter seasonally-adjusted annualized basis, manufacturing shrank by 2.7% after rising 0.7% in the preceding quarter.

The wholesale and retail trade sector contracted by 0.6% on-year in the fourth quarter, turning around from the 1.8% growth in the third quarter.

In contrast, the construction sector is likely to see a turnaround after three consecutive years of contraction, as the pickup in contracts awarded since the second half of 2017 should translate into construction activities. Construction shrank 1.0% on year during the fourth quarter, better than the third quarter's decline of 2.3%.

For the whole of 2018, Singapore's gross domestic product expanded by 3.2% as compared to 3.9% in 2017, MTI said.

--Kevin Lim

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