people-take-photos-with-the-skyline-of-the-financial-district-of-singapore-in-the-background-2060346

After an outperforming year, how will Singapore’s economy fare in 2018?

SINGAPORE, Dec 29: As the economy staged a remarkable recovery in 2017, local electronics manufacturer AEM Holdings enjoyed a busy year.

“We’ve seen our orders surge this year, up by three-fold,” said chairman Loke Wai San, citing strong customer demand.

The maker of high-density semiconductor test handlers for the world’s top chip manufacturers also took the chance to ramp up headcount by 15 per cent. “It has been a very good year,” added Mr Loke.

However, over at Nan Guan Construction, things have been “grim”.

Managing director Akbar Kader noted a 50 per cent drop in business this year amid a dwindling stream of contracts.

“The volume of work from the private sector has been bad. There are some government projects but not as much as before,” he said, while adding that the shortage of contracts has seen larger companies “going down the value chain” to compete with smaller players.

“Competition is stiff. Everyone is just trying to bid for whatever job they can get,” said Mr Akbar.

This contrast underscores the uneven growth that lies underneath the increasingly cheerful economic indicators in Singapore.

While an explosion in factory output, all thanks to a burgeoning semiconductor industry, drove the economy to its fastest pace of growth in nearly four years in the third quarter, softness remained in other sectors, such as construction.

Both firms are looking forward to 2018, with AEM betting on another robust year and Nan Guan hoping for a change in fortunes.

Fortunately, there are emerging signs that suggest so.

SLOWER BUT BETTER GROWTH

“We started 2017 with the recovery story focused on manufacturing, specifically electronics. But over time, I think the optimism has spread,” said OCBC Bank’s head of treasury research and strategy Selena Ling.

The services sector has felt the boost, according to Ms Ling, with financial services and tourism-related services likely emerging as “frontrunners” in 2018.

“Walk along Orchard Road and you’ll see that the crowds are back. Retailers will also tell you that sales have been good during recent sales like Cyber Monday.”

Underperforming sectors will also be less of a drag, which means that overall growth should become less patchy in 2018, noted Ms Ling.

Construction, for instance, should get a lift from the S$1.4 billion worth of public sector contracts brought forward and stream of progress payments from earlier rail-related contracts awarded in 2016.

This broadening in growth beyond trade-related industries is why the Government revised up its 2017 growth forecast range to 3 to 3.5 per cent even though it has been flagging the chances of a moderation in the exuberant manufacturing sector, partly because of a comparison against a high base recorded since the fourth quarter of 2016.

“Manufacturing is going to slow down from double digits to single digit, but (it will) still see relatively healthy growth,” said Ms Ling, adding that the sector will continue to be supported by emerging technology trends such as the Internet of Things (IoT).

AEM, for one, remains positive on its outlook for the year.

In a filing with the Singapore Exchange on Nov 30, the mainboard-listed firm said it received sales orders worth S$76 million for delivery in the first half of FY2018. That is S$23 million more than the sales orders the firm received for delivery over the same period this financial year.

“With the new technologies, our customers are retrofitting and using our equipment to improve their capabilities. They also continue to buy equipment for capacity build-ups,” said Mr Loke.

Pencilling in 3.4 per cent growth this year, OCBC’s Ms Ling thinks the Government’s forecast of 2 to 4 per cent growth for next year is “doable” with “global and regional growth prospects looking more resilient”.

Echoing this sentiment, Mr Jeff Ng, chief economist for Asia at research house Continuum Economics, expects the Singapore economy to expand 2.8 per cent in 2018, pulling back slightly from this year’s expected 3.2 per cent.

But “slower growth may mean better growth”, he said.

“We should see less of a divergence next year, with services stepping up and construction bottoming out as manufacturing growth comes off. But if there are more engines of growth, a lower number may not be bad news as it means better and more sustainable growth.”

Nonetheless, not everyone shares the same optimism.

Singapore Contractors Association’s president Kenneth Loo thinks the slump in the construction sector could go on for another four to five quarters.

“We have always lagged other sectors in the economy… Private sector demand has been slow until the recent en bloc euphoria but for that to translate into construction contracts, it will take 1 to 2 years,” he said.

“The bringing forward of Government projects may bring back a bit of confidence to the market but it remains a small quantum.”

While the revival of the collective sale market will help construction activities, Nomura economist Brian Tan urged for caution: “My main concern is that the market may be getting ahead of itself in terms of expecting this pick-up in (the) property market to be sustained.”

EXTERNAL, DOMESTIC RISKS

For 2018, economists said there should be caution over the balancing of fiscal and monetary policies.

Most market watchers expect the central bank to finally embark on monetary policy normalisation next year, after being in easing mode since 2015 to help bolster the trade-reliant economy.

Given that fiscal policy may tighten next year to ensure fiscal sustainability, economists say authorities may be walking a policy tightrope.

Tax experts and economists have predicted potential tax hikes to come as soon as the upcoming Budget, since Prime Minister Lee Hsien Loong said in November that raising taxes will be inevitable as the Government makes investments in the economy and on infrastructure, as well as spending on social services and safety nets.

An increase in the goods and services tax (GST), a further rise in “sin” taxes or having duties on digital goods and services could be ways the Government could raise revenue, according to experts.

With that, DBS economist Irvin Seah noted that the balance between fiscal and monetary policies needs to be “managed carefully”.

“The MAS is expected to return to an exchange rate appreciation stance while fiscal policy could turn contractionary,” he wrote in a report.

“Although fiscal policy impact is transient in nature, such simultaneous tightening in both fiscal and monetary policy could exert a drag on growth momentum and need to be managed carefully.”

Ms Ling agreed, noting that small- and medium-sized enterprises (SMEs) will likely bear the brunt.

“The risk is putting additional pressure on SMEs which are already struggling to deal with the economic restructuring and tight manpower situation. If you get a stronger Sing dollar and higher interest rates, it will be an additional challenge,” she said.

“That’s the downside risk we see for the benign picture in 2018.”

Meanwhile, external risks remain, with Mr Seah singling out China as the one to watch.

Apart from being Singapore’s largest export market, accounting for 14.8 per cent of total non-oil domestic exports (NODX), China has also been the fastest growing market over the past months.

“Almost 70 per cent of the NODX growth since July 2016 was driven by China alone. Any slowdown in this key market will have a ripple effect on the Singapore economy,” he said.-CNA

Source: http://www.themalaysiantimes.com.my/outperforming-year-will-singapores-economy-fare-2018/