Singapore keeps 2024 GDP growth forecast at 1% to 3%; expects gradual manufacturing and trade recovery

Within the manufacturing sector, the electronics cluster is projected to recover gradually in the coming quarters.

The Ministry of Trade and Industry (MTI) is keeping Singapore’s gross domestic product (GDP) growth forecast for 2024 at 1% to 3%.

This takes into account the performance of the Singapore economy in the first quarter of the year, as well as latest global and domestic economic developments, the ministry said in a statement.

In 1Q2024, Singapore's economy grew by 2.7% y-o-y, extending the 2.2% expansion in the previous quarter. This was primarily driven by the finance and insurance; transportation and storage; as well as wholesale trade sectors. 

Since the MTI’s Economic Survey of Singapore in February, the external economic environment has remained resilient. Particularly, economic growth in the US and China was better than expected in 1Q2024, largely due to stronger-than-expected domestic demand and external demand, respectively. 

Meanwhile, growth in regional economies like South Korea and Taiwan was supported by the global electronics recovery, led by strong demand for artificial intelligence (AI)-related chips. 

Looking ahead, GDP growth in the major economies is expected to taper gradually in the immediate quarters due to tight financial conditions, before picking up alongside anticipated policy rate cuts later in the year. 

The US’ growth outlook has improved slightly on account of the resilience in its labour market and an AI-led boom in investments. However, the robust performance of the US economy in the first quarter, coupled with sticky inflation, is likely to lead to a delay in policy rate cuts by the US Federal Reserve. 

Higher-for-longer interest rates are expected to weigh on the US economy in the immediate quarters, before easing monetary policy in the later part of the year supports a pickup in growth.

In Asia, China’s GDP growth is likely to be stronger than earlier projected due to the roll-out of more government support measures. Manufacturing investment is expected to remain robust as a result of government support for strategic manufacturing industries and the announced trade-in programme, while infrastructure investment will be boosted by government infrastructure spending. 

The recently-announced property market support measures are likely to help stabilise the property market, which should lead to a modest recovery in consumption in the later part of the year. 

Meanwhile, GDP growth in most Southeast Asian economies is projected to be supported by resilient domestic demand, the continued recovery in tourism demand, as well as a pickup in external demand.

However, downside risks in the global economy remain, the ministry points out. First, escalations in geopolitical tensions in the Middle East or the war in Ukraine could disrupt global supply chains and commodity markets. This would weigh on global trade and growth. 

Disruptions to the global disinflation process could also lead to tighter financial conditions for longer, potentially triggering latent vulnerabilities in banking and financial systems. 

Lastly, vulnerabilities in emerging markets arising from a desynchronisation of their monetary policy cycles with that of advanced economies could lead to greater volatility in capital flows and currency fluctuations. 

Against this backdrop, Singapore’s manufacturing and trade-related sectors are expected to see a gradual pickup in growth over the course of the year. 

Within the manufacturing sector, the electronics cluster is projected to recover gradually in the coming quarters, supported by demand for semiconductors for end-markets such as smartphones, PCs and AI. 

Growth in the electronics cluster will in turn have positive spillover effects on the precision engineering cluster, as well as the machinery, equipment and supplies segment of the wholesale trade sector. 

Additionally, the chemicals cluster within the manufacturing sector is projected to continue to expand, partly due to capacity expansions such as that in sustainable aviation fuel. 

The manufacturing sector contracted by 1.8% y-o-y in 1Q2024, a reversal from the 1.4% growth in the previous quarter. The weak performance of the sector was mainly due to output declines in the biomedical manufacturing, electronics and general manufacturing clusters.

Meanwhile, the stronger-than-anticipated recovery in air travel and tourism demand will continue to bolster the growth of aviation and tourism-related sectors such as accommodation, air transport and aerospace, as well as consumer-facing sectors such as retail trade and food and beverage services. 

For the first quarter of the year, the accommodation sector expanded by 14.4% y-o-y, accelerating from the 1.5% expansion in the preceding quarter. Growth of the sector continued to be bolstered by a strong recovery in international visitor arrivals, due in part to the mutual visa-free arrangement with China, as well as the robust lineup of international live entertainment, business and sporting events.

Singapore’s finance and insurance sector will also be supported by higher tourist spending which will benefit the payments segment, as well as the projected peaking of global policy interest rates which will support the banking and fund management segments through higher commissions and fees.

The sector expanded by 6.5% y-o-y in 1Q2024, an improvement from the 5.4% growth in the preceding quarter. A surge in transaction volumes across most asset classes boosted net fees and commission incomes in the banking and fund management segments.