Opening remarks by PS Mr Loh Khum Yean for Economic Survey of Singapore 2018

1 Good morning and welcome to MTI. 

2 Details of Singapore’s economic performance in the fourth quarter of 2018 and the full year of 2018, as well as the growth outlook for 2019 are contained in the press release. Let me highlight the key points.

3 Growth in the Singapore economy eased in the fourth quarter of 2018. 

 On a year-on-year basis, GDP grew by 1.9 per cent in the fourth quarter, easing from the 2.4 per cent growth in the third quarter.  Growth in the quarter was largely supported by the manufacturing, finance & insurance and business services sectors.

 On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 1.4 per cent, the same pace of growth as in the third quarter.

4 For 2018 as a whole, the Singapore economy grew by 3.2 per cent, a moderation from the 3.9 per cent growth achieved in 2017. Growth was primarily supported by the manufacturing, finance & insurance and business services sectors.

5 In line with slower economic growth, productivity growth in 2018 also moderated but remained healthy. Overall labour productivity, as measured by real value-added (VA) per actual hour worked, increased by 3.7 per cent in 2018, lower than the 4.9 per cent recorded in 2017. Overall productivity growth in 2018 was driven by productivity gains in the outward-oriented sectors, especially the manufacturing sector. More details on our productivity performance can be found in the box article in the Economic Survey of Singapore publication.

6 Let me now turn to the economic outlook for 2019.

7 Since the Economic Survey of Singapore media briefing in November last year, the external demand outlook for Singapore has weakened slightly. The IMF has revised downwards its 2019 global growth forecast by 0.2 percentage-point to 3.5 per cent, with downgrades to the forecasts for some of Singapore’s key final demand markets such as the Eurozone and ASEAN-5 economies. As compared to 2018, growth in most of the key advanced and regional economies is expected to moderate in 2019.

 In the US, GDP growth is projected to ease in 2019 as the economy enters the later stages of the macroeconomic cycle and the impact of the fiscal stimulus implemented last year starts to fade. Nonetheless, private consumption is expected to continue to support growth on the back of strong labour market conditions and healthy wage growth. 

 Growth in the Eurozone economy is projected to moderate in 2019, following the easing in growth momentum since early 2018. There is also uncertainty over ongoing Brexit negotiations. However, notwithstanding the risk of a “no-deal” Brexit, domestic demand is expected to lend some support to growth in the Eurozone as labour market conditions are healthy and borrowing costs remain low. 

 In Asia, China’s economy is expected to ease further in 2019.  In particular, sustained efforts by the Chinese government to implement supply-side structural reforms and ongoing domestic deleveraging are expected to lead to a continued moderation in investment growth. China’s exports growth is also projected to slow, in part due to the impact of the US tariffs as “front-loading” activities come to an end. Nonetheless, private consumption is likely to remain stable, supported in part by government measures to boost household spending. Meanwhile, the key ASEAN economies are projected to expand at a slower pace in 2019, weighed down by a moderation in merchandise exports. However, domestic demand is likely to remain resilient on the back of firm consumer sentiments, thereby providing some support to growth in these economies.

8 At the same time, uncertainties and downside risks in the global economy have increased since three months ago. 

 First, there remains the risk of a further escalation of the trade conflicts between the US and its key trading partners, which could trigger a sharp fall in global business and consumer confidence. Should this happen, global investment and consumption spending would decline, with an adverse impact on global economic growth.

 Second, a sharper-than-expected slowdown of the Chinese economy could adversely affect the region’s growth due to falling import demand from China, especially given regional economies’ close interlinkages with China through their participation in manufacturing and trade-related services value chains.

 Third, there is a risk that the UK will leave the EU without a withdrawal agreement. A “no-deal” Brexit could lead to substantial trade frictions between the UK and its trading partners, and weigh on consumer and business sentiments in the UK and EU, with potential negative effects on global growth.

The heightened uncertainties and risks in the global economy have led to a rise in volatility in global financial markets. Should the downside risks materialise, financial market volatility could spike and adversely affect investor sentiments, thereby exacerbating the negative effects on global growth.

9 Against this external backdrop, the pace of growth in the Singapore economy is expected to slow in 2019 as compared to 2018.  
 
 First, the manufacturing sector is likely to see a significant moderation in growth following two years of robust expansions. In particular, the electronics and precision engineering clusters are expected to face external headwinds due to weakening global demand for semiconductors and semiconductor equipment with the fading of the global electronics cycle.

 Second, growth in outward-oriented services sectors such as wholesale trade, transportation & storage and finance & insurance is expected to ease in tandem with the moderation in growth in key advanced and regional economies. 

 Nonetheless, the growth of the information & communications sector is projected to remain resilient given firms’ robust demand for IT and digital solutions. Similarly, the education, health & social services segment’s growth is expected to be supported by the ramp-up of operations in healthcare facilities.

 Meanwhile, 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 in the quarters ahead.

10 Taking into account the global and domestic economic environment, the GDP growth forecast for 2019 is maintained at “1.5 to 3.5 per cent”. MTI’s central view is for GDP growth this year to come in slightly below the mid-point of the forecast range. 

11 Together with my panel members, I am happy to take your questions now.