Singapore: Slower growth ahead
Growth will continue to slow and a sequential decline in 2Q22 should not be discounted.
Group Research - Econs, Irvin Seah25 May 2022
  • Final GDP growth for 1Q22 was in line with expectation at 3.7% YoY and 0.7% QoQ sa
  • Growth momentum will continue to ease in the coming quarters
  • Implications for our forecast – Our full-year growth forecast for 2022 remains at 3.5%
  • Implications for investors – Slower growth may tilt policy decision in October
Article image
Photo credit:Unsplash
Read More

Final GDP figures for the first quarter announced today saw economic growth momentum easing amid increasing external headwinds. The headline GDP growth number registered 3.7% YoY (DBSf: 3.6%), much in line with expectation, but down from 6.1% in the previous quarter. On the margin, growth momentum has eased to 0.7% QoQ sa (DBSf: 0.6%), from 2.3% previously.

Notably, there has been a broad-based slowdown in growth on a YoY basis, which is consistent with our long-held-belief. And more importantly, growth momentum (QoQ sa) in the key manufacturing sector has dipped marginally into the red (-0.2%), the first decline after four consecutive quarters of expansion. Though this is likely part and parcel of the normalisation process, downside risk is emerging, which could take further toll on this key engine of recovery. 

China is the key factor which could pose a drag on the manufacturing sector in the next 1-2 quarters. Amid spikes in domestic infections, the resulting lockdowns in key cities amid its zero Covid policy, domestic demand from within China has softened while supply chains in the region have been severely disrupted. This will have profound implications on the prospects of Singapore’s manufacturing sector, which thus far has been the main engine of the recovery. The second quarter GDP growth may show a QoQ (sa) decline as a result.

Yet, recovery will become more broad-based on the services sector. The re-opening of the borders and easing of measures will ensure the “quality” of growth will improve in the coming quarters. Barring the risks of COVID resurgence or further mutation of the virus, global travel will steadily pick up. This would prompt a speedier recovery in the hospitality, F&B, aviation and tourism related services industries The number of tourist arrivals and the F&B index are showing early signs of improvement. This will likely be one of the key silver linings in the coming months.

Externally oriented services such as shipping, wholesale trade and financial services will continue to do well. IT services will benefit from the increased investment in digital solutions and further adoption of new technologies, while business services will continue to leverage on the overall improvement in business sentiments, as well as a still resilient real estate activity.

Labour crunch remains the biggest challenge for the construction sector. The continued moderation in growth momentum is a reflection of the manpower crunch within this sector even though project pipeline remains strong. As of 4Q21, there is an unprecedented job vacancy of 12.4K in the industry. Indeed, the sector is still far from a full recovery from the pandemic, as the value-added of the sector is still below pre-COVID level. The reopening of the borders should help but such manpower bottleneck will take time to resolve.

Risks from the Russia-Ukraine war continue to linger. Beyond the overhanging risk to global geopolitical stability, the war has already driven global energy, food and commodity prices significantly higher. Such global inflationary pressure will spill over into Singapore’s domestic price dynamics and hurt its medium-term growth outlook. Malaysia’s poultry export ban will only exacerbate the inflationary pressure. Juxtaposed with an already tight labour market and an increasingly positive output gap, Singapore’s headline number will continue to hover at about 5% level in the coming months. High inflation will surely weigh down on consumer spending. The resulting monetary policy tightening by global central banks to rein in inflation will also imply a weaker global growth outlook, which in turn will have ripple effect on the Singapore economy.

We’re maintaining our long-held below-consensus forecast of 3.5% GDP growth for 2022. The Ministry of Trade and Industry (MTI) has also highlighted in today’s statement that full year GDP growth will fall in the lower half of the existing official forecast range of 3-5%, which is smack in line with our expectation.

To read the full report, click here to Download the PDF.

Irvin Seah

Senior Economist - Singapore
[email protected]

Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.


Explore more

E & S Flash
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)

The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.

DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. 

DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR

Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply.  The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.