Singapore in 2018/19: Better times


We expect headline GDP growth for Singapore to hover around 3% in the next two years, thanks to a broad-based recovery; the Straits Times Index could rise to 3,688 by end-2018, representing 10% total ...
Irvin Seah, Philip Wee, Eugene Leow, Joanne Goh, Janice Chua12 Dec 2017
  • We expect GDP growth to hover around 3% in the next two years, thanks to a broad-based recovery
  • Inflation will rise; the central bank will likely return to a path of policy normalisation
  • We expect USD/SGD to rise to 1.39 in 2018 before falling back to 1.35 in 2019
  • SGD rates are likely to head higher as the Fed normalisation continues
  • The STI could attempt to hit 3,688 by end-2018, representing around 10% total return
Photo credit: AFP Photo


This is an excerpt of a more detailed deep-dive into Singapore which we issued today. For the PDF of the report, please scroll to the bottom of the page or click on the tab on the right.

Overall growth momentum is strengthening and will likely be sustained in the coming quarters. We expect GDP growth to register 3.0% in 2018 and 2.7% in 2019, from 3.2% in 2017.

The exuberance in the manufacturing sector may ease in the coming quarters. While it currently appears that holiday demand for electronics this year is more buoyant than in the past two years, global semiconductor billing and shipments indices are suggesting that the current pace of growth could moderate. We expect some degree of slowdown in electronics demand heading into 2018, which will lead to slightly slower manufacturing growth.

The main story behind the growth numbers is that the recovery is broadening. Services is likely to become the main driver of Singapore’s economic expansion over the next year or so, boding well for employment.

Inflation is expected to register 1.0% in 2018, up from 0.6% in 2017. For 2019, inflation will likely return to its long-term trend growth of 1.8%. The medium-term expectation is that the stable outlook for global food and commodity prices and a broadly benign inflationary environment globally should keep a lid on imported inflation.

While expectation is for monetary policy to return to a gradual appreciation of the SGD NEER in 2018, the exact timing of the shift will hinge on developments in inflation and the labour market. Any upside on either front will bring a policy response sooner, rather than later.

Meanwhile, USD/SGD is set to stay within the 1.33-1.45 range established since 2015. This is unlikely to change in 2018-19. Having fallen towards the floor of this range in 2017, the risk/reward now favours a recovery in USD/SGD back towards 1.40 in 2018 before it moves back down to 1.35 in 2019.

The outlook for Singapore government bonds/bills is mixed. Due to tighter liquidity conditions, short-term bills (1M and 3M) look very cheap compared to Sibors/SORs. USD-based investors can gain an after-swap pickup of 56bps buying 3M bills. Further out the curve, SGSs look rich compared to their UST counterparts. 5Y USTs now yield 50bps more than 5Y SGSs. Notably, this spread has widened by more than 30bps since September as SGSs outperformed. We think that the 2Y-7Y segment of the SGS curve is unattractive and is more vulnerable to a selloff if the Fed delivers on rate hikes as we expect.

Singapore remains one of the few regional markets where the benchmark – Strait Times Index (STI) – is still trading below its all-time high. We believe there is potential in the year ahead for the index to challenge its previous high. After declining for two years in 2015 and 2016, corporate earnings in Singapore rebounded in 2017, and the recovery is set to be sustainable into 2018/19 as a global synchronised recovery gains further momentum. Better earnings growth should also be seen across all sectors to support further upside in the index as the economic recovery becomes more broad-based.

We believe the STI could hit 3,688 by end-2018, representing around 10% total return inclusive of dividends. The Singapore strategy team favours banks, property, consumer goods, and offshore & marine sectors to ride the broad-based recovery as well as rising oil prices.

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

  Irvin Seah
irvinseah@dbs.com


  Philip Wee
philipwee@dbs.com


  Eugene Leow
eugeneleow@dbs.com


  Joanne GOH
joannegohsc@dbs.com


  Janice Chua
janicechuast@dbs.com

The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only.  It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose.  Opinions and estimates are subject to change without notice.  The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information.  Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities.  Foreign exchange transactions involve risks.  You should note that fluctuations in foreign exchange rates may result in losses.  You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such.  Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof. 

The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.  The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.