Singapore cuts 2022 GDP growth forecast to 3-4% as global headwinds grow

SINGAPORE – The Government has narrowed its economic growth forecast range for 2022 in tandem with a worsening outlook for the global economy and stubbornly high inflation.

The Ministry of Trade and Industry (MTI) narrowed its range for Singapore’s gross domestic product growth this year to 3 per cent to 4 per cent, from an earlier projection of 3 per cent to 5 per cent.

The cut in the outlook takes into account the performance of the Singapore economy in the first half of the year, as well as the latest global and domestic economic developments, MTI said on Thursday (Aug 11).

The economy grew by 4.4 per cent on a year-on-year basis in the second quarter, taking the first-half growth to 4.1 per cent, the ministry said in its second-quarter Economic Survey of Singapore for 2022.

The pace of growth was less than the 4.8 per cent that MTI had projected in July, though faster than the 3.8 per cent achieved in the first quarter.

On a quarter-on-quarter seasonally adjusted basis, the economy contracted slightly by 0.2 per cent, a reversal from the 0.8 per cent expansion in the first quarter and a worse outcome when compared with MTI’s earlier estimate of 0 per cent.

Mr Gabriel Lim, Permanent Secretary for Trade and Industry, said the global economic environment has deteriorated further since the last projections were made.

“Stronger-than-expected inflationary pressures and the more aggressive tightening of monetary policy in response are expected to weigh on growth in major advanced economies,” he said on Thursday at a briefing on the second-quarter outlook.

“Against this backdrop, the growth outlook for some outward-oriented sectors in the Singapore economy has weakened,” he noted.

The survey showed that the manufacturing sector expanded by 5.7 per cent year on year in the second quarter, extending the 5.5 per cent growth in the previous quarter.

Growth in the construction sector picked up to 3.3 per cent year on year, from the 2.4 per cent registered in the previous quarter.

Meanwhile, the wholesale trade sector grew by 1.9 per cent year on year, slower than the 4.8 per cent growth achieved in the first quarter.

Separately on Thursday, Enterprise Singapore again raised its 2022 trade forecasts. It now expects non-oil domestic exports (Nodx) to grow by 5 per cent to 6 per cent this year, from the previous forecast of 3 per cent to 5 per cent. Total merchandise trade is seen expanding 15 per cent to 16 per cent, up from 8 per cent to 10 per cent.

However, those forecasts are for nominal exports, which have been buttressed by rising prices. 

Analysts believe that real exports, after stripping out the impact of inflation, have been shrinking through at least the second quarter. If so, this would put downward pressure on the growth of Singapore’s outward-oriented sectors such as manufacturing and wholesale trade.

Dr Chua Hak Bin, senior economist at Maybank Kim Eng, said real Nodx contracted for the fifth straight month in June, dipping 0.5 per cent year on year after a 1.3 per cent drop in May.

MTI’s Mr Lim said that the external demand outlook for the Singapore economy has weakened compared with three months ago and there are risks of further deterioration.

He said further escalations in the Russia-Ukraine conflict could exacerbate inflationary pressures and dampen global growth even more. Disorderly market adjustments to monetary policy tightening in advanced economies may hurt global financial stability, and there is also the risk of an escalation in geopolitical tensions in the region, he added. 

MTI also believes that the trajectory of the Covid-19 pandemic remains a risk, given the potential emergence of more virulent strains of the virus.