Singapore GDP could slow to 0.4% in 2023, below official outlook: ICAEW, Oxford Economics

SINGAPORE’S economic growth could slow “significantly” to 0.4 per cent this year, even as it escapes a technical recession, the Institute of Chartered Accountants in England and Wales (ICAEW) said on Monday (Jun 26).

ICAEW’s estimate, based on research by Oxford Economics that it commissioned, is lower than Singapore’s official gross domestic product (GDP) forecast of “0.5 to 2.5 per cent, with growth likely to come in at around the midpoint of the range”.

The gloomier take comes amid a region-wide slowdown dragged by waning external and domestic demand, despite China’s reopening.

In Singapore, private consumption growth momentum is set to wane as the post-Covid rebound fades, while high inflation and tighter financial conditions will continue to squeeze household income, ICAEW said.

“Even as inflation comes off this year, we expect real wages to fall as nominal wage growth slows after last year’s jump,” it added.

“Though we don’t expect a technical recession, we forecast Singapore to barely grow this year, as a highly export-oriented economy,” ICAEW said. A technical recession occurs when there are two consecutive quarters of sequential contraction.

It is expecting exports to contract further, at 3.2 per cent this year, deteriorating from last year’s 1.3 per cent.

Apart from the global semiconductor downturn, increasing US-China frictions and other uncertainties could further dampen export growth in Asia, “particularly in the advanced economies specialising in IT and electronics, including Singapore”.

“Firms in the region are responding to the poor state of US-China relations and the US restrictions already imposed on the sale of the most advanced IT products to China,” ICAEW said. “Chinese firms are also likely to be adjusting their purchasing strategies in response to trade tensions and the priorities of their government.”

GDP in South-east Asia is set to ease to 3.8 per cent this year, ICAEW said, lower than the consensus forecast of 4.1 per cent and well below last year’s 5.4 per cent growth.

Thailand is the only country expected to buck the trend of slower growth, with the tourism recovery supporting a growth pickup.

“On the external front, South-east Asia exports didn’t benefit much from resilient global growth in recent quarters,” said ICAEW.

Export volumes tumbled last year and faltered again in April this year, following a respite in the fourth quarter.

“Worryingly, weak Q1 export performance coincided with the still-growing US and a rebounding Chinese economy after the end of its zero-Covid policies,” it said.

It noted that the US economy looks set to suffer a “period of weakness” as the impact of monetary tightening feeds through, while any boost to Asia from China’s reopening will be centred on tourism.

“The downward pressures on South-east Asia goods exports will persist into H2 2023, and we forecast only a mild improvement in exports growth in 2024,” it said.

Encouragingly, headline inflation is falling across the region, ICAEW said, notwithstanding “generally stickier core inflation”. Regional consumer price index (CPI) is expected to fall to 3.9 per cent this year before slowing to 2.5 per cent in 2024. The CPI last year was 5 per cent.

In Singapore, headline inflation is likely to come in at 4 per cent this year and ease to 1.8 per cent next year.

Meanwhile, GDP growth in South-east Asia could improve to 4.5 per cent, ICAEW said, slightly lower than the consensus forecast of 4.6 per cent.

For Singapore, growth could pick up to 2.3 per cent, below the five-year pre-pandemic average growth of around 3 per cent.