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Nikkei Markets

Singapore slowdown spreads, seen lasting many quarters

Central bank expects domestic demand to lend some support

SINGAPORE (Nikkei Markets) -- Singapore's central bank warned that the slowdown in the city-state's economy could continue for several quarters even as data showed some unexpected weak spots, indicating the general downtrend was gaining momentum.

In its half-yearly macroeconomic review, the Monetary Authority of Singapore painted a bleak picture of the world economy, citing weakness in developed economies that could continue into 2020.

"Broadly, the subdued prospects for global growth will weigh on the externally oriented segments in Singapore," MAS said. Further, the global electronics sector faces significant headwinds due to oversupply, which has been exacerbated as demand softens due to the uncertain business environment, MAS said.

However, steady domestic demand in the region and increased investments in digitalization would provide some support, it said. The central bank reiterated its forecast that growth would come in slightly below the midpoint of the Ministry of Trade and Industry's 1.5%-3.5% estimate for 2019.

MAS's comments come as data from the Singapore Economic Development Board showed a 4.8% fall in manufacturing output in March - the first year on year decline in 15 months - as production of electronics and precision engineering systems and components fell by double-digits.

Somewhat unexpectedly, the marine and offshore engineering industry saw output fall by 10.2% from a year ago, worsening from February's 5.0% decline. The industry showed robust growth before February's contraction as global oil companies resumed exploration and production activity.

The Urban Redevelopment Authority, meanwhile, said office rents fell 0.6% on quarter during the first three months of the year after increasingly steadily over the past one and half years even as prices of office properties continued to rise.

"The divergent performance of the office price and rental indices could be a sign that tenants are showing some resistance to higher rents in view of the uncertainties in the business outlook," said Christine Li, Cushman and Wakefield's head of research for Singapore and South East Asia.

DBS Group Research, in a commentary, noted an exuberance in financial markets that was not supported by actual developments, such as a resolution of the conflict between the U.S. and China.

"Markets have moved well ahead of the China-U.S. trade deal and an actual revival in global trade. In fact, trade-dependent economies continue to face major headwinds with little sign of upside," the bank said.

According to EDB, output from Singapore's precision engineering cluster decreased by 13.3% in March from a year ago as factories produced fewer industrial process control and semiconductor-related equipment as well as optical and wire and cable products.

Electronics fell 15.3%, with weakness in the output of semiconductors, computer peripherals and data storage, which was hard hit as production fell 38.9% from a year ago.

Maybank Kim Eng said the electronics industry's performance was the worst in six years and consistent with the plunge in exports of electronics in March. Electronics makes up about a quarter of Singapore's manufacturing, which in turn accounts for about 20% of gross domestic product.

The brokerage said it expects MTI to downgrade its full-year growth forecast to 1.5%-2.5% from the current 1.5%-3.5% when the detailed first quarter GDP data are released in May. "Our GDP growth forecast assumes a weak manufacturing and export recovery in the second half, predicated on a U.S.-China trade deal in the coming months," Maybank Kim Eng said.

--Kevin Lim

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