Opening remarks by PS Mrs Ow Foong Pheng for 3Q2014 Economic Survey of Singapore

ECONOMIC SURVEY OF SINGAPORE (3Q2014) Opening Remarks

Good morning and welcome to MTI.

Details of Singapore’s economic performance for the third quarter and the growth outlook for 2014 and 2015 are contained in the press release. Let me highlight a few key points.

The Singapore economy performed slightly better in the third quarter as compared to the second quarter of 2014.

• On a year-on-year basis, GDP grew by 2.8 per cent in the third quarter, an improvement from the 2.3 per cent in the previous quarter.  Growth was supported by the finance & insurance and business services sectors.

• On a quarter-on-quarter basis, the economy grew at a seasonally-adjusted annualised rate of 3.1 per cent, a reversal from the 0.3 per cent decline in the previous quarter.

For the final quarter of the year, we expect growth in the Singapore economy to ease on a year-on-year basis, in line with a projected slowdown in the global economy. Externally-oriented sectors such as the manufacturing and transport & storage sectors are likely to slow, while growth in the construction sector will continue to be weighed down by the weakness in private sector construction activities. However, domestically-oriented sectors like business services are likely to remain resilient.

Taking into account the above factors, MTI is narrowing the growth forecast for the Singapore economy to around 3 per cent for the whole of 2014, from the earlier forecast of 2.5 to 3.5 per cent. 
 
Looking ahead to 2015, MTI expects global growth to pick up modestly, although the pace of recovery is likely to remain uneven across the economies.

• The US economy is expected to improve, supported by domestic demand. Government expenditure is projected to increase, and private consumption growth will likely be supported by improvements in the labour market. In addition, with industrial capacity utilisation rates having recovered to pre-crisis levels, firms are likely to increase capital spending. 

• While growth in the Eurozone is expected to pick up, the pace of recovery is likely to remain weak. On-going tensions involving Russia and Ukraine have dampened business and consumer sentiments in the Eurozone. Sluggish labour market conditions will also continue to weigh on growth in the region.

• In Asia, China’s growth is expected to ease further in 2015 on the back of sluggish real estate activities. Nonetheless, the moderation in growth will likely be contained, as an expected improvement in external demand from the US may boost exports. The Chinese government is also likely to introduce further targeted measures to support growth. Meanwhile, key ASEAN economies like Malaysia and Indonesia are expected to remain resilient in 2015, supported by healthy investment growth.

However, there are downside risks to the global growth outlook ahead.

• In the Eurozone, there are concerns that its economy will fall into a deflationary spiral. Deflation could accentuate the debt servicing risks of the peripheral economies by raising real interest rates. The increase in real interest rates could also lead to a further pull-back in investments and consumption.

• In the US, there are uncertainties over when, and the pace at which, the Federal Reserve (Fed) will raise the Fed Funds rate. An unexpected tightening of monetary conditions would weigh significantly on US’ financial markets and business sentiments.

• In China, there is the risk of a sharp correction in the real estate market, which could have severe negative spill-over effects on construction and real estate investment activities. The impact of the correction may also be amplified through the financial sector, as defaults on property-related loans may spike.

• Finally, on-going geopolitical tensions involving Russia and Ukraine, and key oil producers in the Middle East and North Africa, as well as the possibility of a global Ebola outbreak pose downside risks to the global economy.

Domestically, the labour market is expected to remain tight, with low unemployment and rising vacancy rates.

Against this macroeconomic backdrop, the growth outlook for the Singapore economy in 2015 remains modest.

• In tandem with the expected pick-up in external demand, externally-oriented sectors such as manufacturing, wholesale trade and finance & insurance are likely to provide support to growth.

• While some domestically-oriented sectors such as business services are expected to remain resilient, labour-intensive ones like construction, retail and food services may see their growth weighed down by labour constraints.

Taking into account the above factors and barring the materialisation of downside risks highlighted, the Singapore economy is expected to grow by 2 to 4 per cent in 2015.

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