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Economy

Singapore drastically cuts growth forecast as trade war bites

Economists predict city-state could experience full-year contraction

More U.S. tariffs on Chinese goods might hinder regional growth and push Singapore to stimulate its slumping economy.   © Getty Images

SINGAPORE -- Trade-dependent Singapore is increasingly hurting from the prolonged U.S.-China economic standoff, with officials of the city-state downgrading its growth forecast on Tuesday to the 0% to 1% range for 2019, from 1.5% to 2.5%.

The officials said growth was expected to be at around the middle of the new range.

The country's Trade and Industry Ministry had in May already slashed gross domestic product estimates to 1.5% to 2.5%, from 1.5% to 3.5%. But as the world's two largest economies continue to bicker, the outlook for Singapore's growth has dimmed further.

Officials warned in June that growth was being further reviewed, with the country's economy facing headwinds from the global slowdown in manufacturing, trade and investment. Tuesday's announcement was no surprise, as Singapore reported that gross domestic product grew merely 0.1% on the year in the April-June quarter -- confirming previously released preliminary data that growth was at its lowest rate in 10 years.

The results were a steep drop from the 1.1% expansion seen in the January-March period, marking the most dismal results since the April-June quarter in 2009 during the global financial crisis, when the economy contracted 1.2%.

Economists who spoke to the Nikkei Asian Review said more gloom might be on the horizon, with the city-state potentially experiencing a contraction when full-year figures are compiled at the close of 2019.

"The fourth quarter could turn out to be even worse. There could even be a risk of growth dropping below 0%. While we see the current forecast is a reflection of the current uncertainties and downward pressure, if all the downward pressure and risk materialize further... there is a real risk of the (GDP forecast) number being further downgraded if the escalation in the trade fight builds up into the year," said Song Seng Wun, Economist at CIMB Private Banking.

Manufacturing, which makes up a fifth of the city-state's economy, contracted 3.1% on the year in the second quarter on the back of output declines in the electronics, precision engineering and transport engineering sectors. This extended a 0.3% contraction seen in the previous three months.

"We are potentially looking at an all-out recession for manufacturing, with a negative full-year number. The sector has already registered three full quarters of negative growth. The outlook is still very dicey; the external environment remains very challenging," DBS Bank Senior Economist Irvin Seah told Nikkei.

Seah said that although there appeared to be signs of bottoming out in recent months in semiconductor equipment billings, shipment growth in semiconductors globally has continued to slip. Further tariffs by the U.S. on Chinese imports, as well as the ongoing trade dispute between Japan and South Korea, could potentially derail any possible turnaround in the electronics cycle, he added.

Singapore is a key production and export hub for electronic components like semiconductors used in high-end tech devices.

"The key electronics sector appears to remain in a difficult situation. While we saw some improvement in places like Taiwan (where imports of capital goods for semiconductors rose), the signs may be more idiosyncratic as opposed to a more broad-based pick-up," said Standard Chartered Bank's Chief Economist for ASEAN and South Asia, Edward Lee.

The construction sector grew 2.9% on the year, supported by public sector construction works, while the services industry expanded 1.1%.

The country's Trade and Industry Ministry said downside risks in the global economy had increased, with the recent U.S. announcement of possible tariffs on an additional $300 billion-worth of imports from China. "This could severely dent global business and consumer confidence, with adverse implications on global trade and global economic growth," the ministry said on Tuesday.

The ministry added that additional tariffs imposed by the U.S. could lead to a steeper-than-expected slowdown of China's economy, denting Chinese import demand and hindering regional growth.

As Singapore marked its 54th year of independence on Aug. 9, Prime Minister Lee Hsien Loong told the country in a televised address that the government would "stimulate the economy" if necessary.

"Global demand and international trade have weakened. This has affected our manufacturing sector and trade-related services," Lee said. "In particular, we are feeling the worldwide cyclical downswing for electronics, which performed strongly last year. But other parts of our economy are still doing well. We have experienced such slowdowns before and we will take this one in stride."

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