Opening Remarks by PS Loh Khum Yean for Economic Survey of Singapore, First Quarter 2016

 ECONOMIC SURVEY OF SINGAPORE (1Q2016)

(25 May 2016)

Opening Remarks

1        Good morning and welcome to MTI.

2        Details of Singapore’s economic performance for the first quarter and the growth outlook for 2016 are contained in the press release. Let me highlight a few key points.

3        The Singapore economy expanded at a modest pace in the first quarter of 2016.

Ø The economy grew by 1.8 per cent on a year-on-year basis in the first quarter, unchanged from the previous quarter. Growth was supported by the finance & insurance, wholesale trade and construction sectors.

Ø On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 0.2 per cent, slower than the 6.2 per cent growth in the previous quarter.

4        At the last Economic Survey of Singapore media briefing in February, MTI highlighted that while the outlook had weakened at the start of the year, global growth was expected to be slightly better than in 2015. Since then, the global economic outlook has softened further, with global growth for the year now expected to be broadly similar to that in 2015. In particular, the growth outlook for the advanced economies has deteriorated marginally.

Ø Growth momentum in the US economy has slowed in recent months, mainly due to weaker exports and a further pullback in oil-related investments. For the year as a whole, the US economy is now projected to grow at a similar pace as compared to 2015. Growth will be supported by domestic demand, as the labour and housing markets continue to improve.

Ø In the Eurozone, the pace of recovery in the economy has been uneven, and growth for the year is projected to remain modest. In particular, consumer confidence remains weak and could weigh on consumption expenditure in the region. However, continued improvements in the unemployment situation in most economies, coupled with highly accommodative monetary conditions, should help to support domestic demand.

Ø In Asia, China’s growth is projected to moderate, as the economy continues to rebalance away from industrial production and investment-driven growth towards services and consumption-driven growth. Nonetheless, the slowdown is expected to be gradual, as accommodative monetary conditions and the expansion of fiscal stimulus, along with structural reforms to boost consumption, are likely to provide support to growth.

5        At the same time, the global economic outlook remains clouded with uncertainties and downside risks.

Ø In China, there is a risk that ongoing reforms could have the unintended effect of precipitating a significant drop in demand. If this materialises, China’s economy could slow down more sharply than expected. The impact of the slowdown could also be amplified through the financial system should debt defaults spike.

Ø There continues to be the risk of an unanticipated quickening of the normalisation of monetary conditions in the US. Should this happen, regional countries could face large capital outflows, resulting in pressures on their currencies and asset markets.

Ø Uncertainties in the run-up to the referendum in June on Britain’s exit from the European Union (i.e., Brexit) could also adversely affect sentiments and investor confidence in the Eurozone, thus leading to lower investments and consumption. The loss of investor confidence amidst heightened political risks could also lead to higher debt servicing costs in the peripheral economies.

6        Against this backdrop, the Singapore economy is expected to grow at a modest pace in 2016.

Ø The softening of global economic conditions, as well as continued sluggishness in global trade, could weigh on externally-oriented sectors such as the manufacturing and transportation & storage sectors. Persistent low oil prices will also continue to dampen the outlook for firms in the marine & offshore segment, as well as those in the precision engineering cluster that support the oil & gas industry.

Ø While sectors such as finance & insurance and wholesale trade could see a moderation in growth compared to 2015, they are still likely to provide some support to overall GDP growth for the year. In addition, tourism-related sectors may see a boost from the recovery in visitor arrivals, and the biomedical manufacturing cluster could see an uptick in production due to the introduction of new active pharmaceutical ingredients.

7        Taking these factors into account, and barring the full materialisation of downside risks, the 2016 growth forecast for the Singapore economy is maintained at 1.0 to 3.0 per cent.

8        Together with my panel members, I will now take your questions.