Opening remarks by PS Mrs Ow Foong Pheng for 4Q2014 Economic Survey of Singapore

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ECONOMIC SURVEY OF SINGAPORE (2014)

(17 February 2015)

Opening Remarks

Good morning and welcome to MTI.

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

The Singapore economy performed moderately well in the last quarter of 2014, and for the whole of 2014.

• On a year-on-year basis, GDP grew by 2.1 per cent in the fourth quarter of last year, compared to 2.8 per cent in the third quarter. Growth was largely due to expansions in the finance & insurance and business services sectors. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 4.9 per cent, faster than the 2.6 per cent in the previous quarter.

• For 2014 as a whole, the economy grew by 2.9 per cent, easing from the 4.4 per cent growth in 2013. Growth was mainly supported by the finance & insurance and manufacturing sectors. Notably, while growth in most sectors moderated in 2014 relative to 2013, the manufacturing sector expanded at a faster pace, on the back of stronger growth in the biomedical manufacturing and chemicals clusters.

I will now turn to the economic outlook for 2015.

The global economic outlook has softened in recent months, with growth in 2015 expected to be only marginally better than in 2014. The pace of recovery is also likely to be uneven across the economies, with the US economy being the main bright spot. Growth in the US economy is expected to accelerate in 2015, supported by domestic demand. However, growth in the Eurozone is expected to remain weak, due to sluggish labour market conditions and deflationary pressures. In Asia, the Chinese economy is expected to slow down further in 2015, on the back of sluggish real estate activities. Furthermore, the recent plunge in oil prices has dampened growth prospects in oil-exporting economies, even though it could benefit oil-importing economies.

There are also significant downside risks to the global growth outlook.

• In the Eurozone, slow growth and persistent low inflation have heightened fears that the Eurozone will fall into a deflationary spiral. Deflation could accentuate the debt servicing risks of peripheral economies in the Eurozone by raising real interest rates. This could in turn cause a further pull-back in both investments and consumption.

• 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. This could then lead to a sharper-than-expected slowdown in the Chinese economy.

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

• Finally, with the sharp correction in commodity prices and recent capital outflows from emerging markets, there may be fiscal and financial stresses in some emerging market economies.

Amidst this challenging global economic environment, externally-oriented sectors such as the manufacturing and wholesale trade sectors are likely to face headwinds in 2015. Domestically, the labour market is expected to remain tight, with low unemployment and rising vacancy rates. As a result, labour-intensive sectors such as construction, retail and food services may see their growth weighed down by labour constraints. Nonetheless, other domestically-oriented sectors such as business services are expected to remain resilient.

Taking into account the above factors, and barring the full materialisation of the global downside risks highlighted earlier, the Singapore economy is expected to grow at a modest pace of 2.0 to 4.0 per cent in 2015.

Before the panel and I take your questions, I would like to take this opportunity to draw your attention to changes in the Economic Survey of Singapore and IE Singapore’s quarterly trade review.

MTI has revamped the Economic Survey of Singapore publication to make it more reader-friendly. We have improved its design and layout, with the use of infographics to highlight key data and trends. We welcome any feedback on the publication.

As for IE Singapore’s quarterly trade review, it will now include statistics on services trade alongside those on merchandise trade. Services trade has risen in importance over the years, even though merchandise trade still accounts for the bulk of total trade. Between 2004 and 2014, the share of services trade in total trade increased from 19.7 per cent to 26.7 per cent, while the share of services exports in total exports rose from 16.9 per cent to 25.5 per cent. In view of the growing importance of services trade, IE Singapore will be including services trade data in its quarterly trade review in order to provide the public with a more comprehensive picture of Singapore’s overall trade performance on a regular basis. In the 2014 Economic Survey of Singapore publication, we have also included a box article to explain recent trends in our merchandise and services exports.

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