Opening Remarks by PS Mrs Ow Foong Pheng for 2Q2014 Economic Survey of Singapore, 12 August 2014
1. Good morning and welcome to MTI.
2. Details of Singapore’s economic performance in the second quarter and the growth outlook for 2014 are contained in the press release. Let me highlight a few key points.
3. The Singapore economy continued to grow at a modest pace in the second quarter of 2014.
On a year-on-year basis, GDP grew by 2.4 per cent in the second quarter, slower than the 4.8 per cent growth achieved in the previous quarter. The slowdown was mainly due to weaker growth in the manufacturing and wholesale trade sectors.
On a quarter-on-quarter basis, the economy grew at a seasonally-adjusted annualised rate of 0.1 per cent, moderating from the 1.8 per cent growth in the preceding quarter.
4. Overall, for the first half of 2014, the economy grew by 3.5 per cent on a year-on-year basis, slightly slower than the 3.9 per cent achieved in 2013. The slowdown in growth can be partly attributed to sluggish global economic conditions.
5. In particular, global growth in the first quarter turned out to be weaker than expected, primarily because of a sharp slowdown in the US economy caused by harsh weather conditions, as well as the slowdown in the Chinese economy.
6. Recent incoming data, however, suggest that global economic activities have started to pick up. Leading indicators such as the OECD Composite Leading Indicators also point to a slight improvement in the global outlook for the second half of the year.
Economic activities in the US improved in the second quarter following harsh weather conditions experienced in the first quarter. For the second half of the year, the US economy is expected to grow at a slightly faster pace, supported primarily by private domestic demand.
The Eurozone is expected to continue to recover modestly in the second half of the year, supported by a reduced pace of fiscal consolidation and a highly accommodative monetary policy. Nonetheless, high private and public debt levels in some peripheral economies, as well as sluggish labour and credit markets, could continue to weigh on domestic demand and growth in the Eurozone.
In Asia, the Chinese economy is expected to maintain a similar pace of growth in the second half, as recent support measures introduced by the government could partially offset the drag posed by tighter regulations to rein in shadow banking activities. Key ASEAN economies like Malaysia and Indonesia are also expected to remain resilient in 2014, supported by robust domestic demand.
7. Although global growth is likely to improve modestly in the second half of 2014, downside risks remain.
In the US, there are uncertainties over the pace at which the Federal Reserve will exit from its accommodative monetary policy. If the Federal Reserve tightens monetary conditions earlier than expected, financial markets and business sentiments in the US could be adversely affected.
In China, companies may face debt repayment problems amidst the slowdown in real estate activities and tighter regulations in the shadow banking sector. A spike in default rates could trigger a sudden withdrawal of funds from the financial system, thus leading to financial instability and a sharper-than-expected slowdown in the Chinese economy.
Lastly, should geopolitical tensions involving key oil producers in the Middle East and Russia escalate, there could be upward pressures on oil prices, which would in turn weigh on global growth.
8. Against this macroeconomic backdrop, the Singapore economy is expected to grow modestly in 2014.
Externally-oriented sectors such as finance & insurance and wholesale trade are likely to provide support to growth for the rest of the year, in line with the modest pickup expected in the global economy.
Domestically-oriented sectors such as business services and information & communications are expected to remain resilient in the second half of 2014. However, growth in some labour-intensive segments such as retail and food services may be weighed down by labour constraints.
9. Taking these factors into consideration, the 2014 growth forecast for the Singapore economy is narrowed to 2.5 to 3.5 per cent.
10. Together with my panel members, I will now take your questions.