S’pore’s GDP growth forecast for 2023 dips to 1.4%: MAS survey

One key factor cited was that bank loan growth will slow to 0.5 per cent, well down from the estimate of 1.3 per cent made in March.

Colin Tan

Colin Tan

The Straits Times


For 2024, the forecast for GDP growth remains largely unchanged at 2.5 per cent. ST PHOTO: KUA CHEE SIONG

June 15, 2023

SINGAPORE – Private-sector economists have slashed their estimates for economic growth this year following a lacklustre first quarter and the manufacturing sector’s ongoing fragility.

They now believe gross domestic product (GDP) will come in at 1.4 per cent, down markedly from the 1.9 per cent forecast they made in March.

One key factor cited for the lower growth forecast in the quarterly survey by the Monetary Authority of Singapore (MAS) released on Wednesday was that bank loan growth will slow to 0.5 per cent, well down from the estimate of 1.3 per cent made in March.

DBS analyst Lim Rui Wen said expectations on loan growth had dimmed in the wake of falling demand from businesses and consumers since last December.

Local banks cite increasing headwinds in the global economy and uncertainty about interest rates, she added.

Maybank Research senior economist Chua Hak Bin concurred, noting that the financial sector may continue to contract, as businesses cut back on investments and consumers turn more cautious on spending.

“Non-resident loans are contracting at a sharper rate, suggesting that multinationals may be more wary about the economic outlook than locals,” he said.

The survey’s pessimism stems from the weaker-than-expected first-quarter economic growth, as well as the manufacturing industry’s underperformance.

UOB senior economist Alvin Liew said this was unsurprising as manufacturing output and non-oil domestic exports have been retreating for many months.

Expectations for manufacturing, which accounts for more than a fifth of the Singapore economy, have fallen from the March forecast of no growth in 2023 to a contraction of 1.3 per cent.

The survey polled 24 economists and analysts who monitor the local economy.

Maybank’s Dr Chua would find his forecasts at the pessimistic end, expecting growth of just 0.8 per cent for the year, with increased probability of a technical recession.

In the optimistic camp is OCBC Bank chief economist Selena Ling, who expects the economy to grow by 1.5 per cent in 2023 and 2.5 per cent in 2024.

However, she also senses “heightening concerns” for a more prolonged soft patch stretching from now until the third quarter.

Growth for finance and insurance is expected to shrink to 1.3 per cent from the previous forecast of 2.5 per cent, while expansion in wholesale and retail trade is forecast to slip to 0.8 per cent from the 1.9 per cent predicted in March.

However, it is not all gloom: Construction is predicted to post growth of 7 per cent, up from last quarter’s 4.2 per cent tip, and accommodation and food services should log a 10 per cent expansion, ahead of the previous forecast of 8.4 per cent.

But Mr Liew noted that there was a need to be more circumspect, as the extent of the improvement in services “may be curtailed by the risk factors arising from global growth weakness, banking sector issues and evolving geopolitics”.

The survey’s GDP forecast for 2024 came in at 2.5 per cent, largely unchanged from March.

Forecasts were also mostly unchanged for consumer inflation at 5 per cent compared with 2022, and for core inflation to remain stable at 4.1 per cent, while the overall unemployment rate should to ease to 2.1 per cent, from 2.2 per cent previously.

The Singapore dollar is expected to remain stable at $1.32 to the US dollar, marginally higher than the March forecast of $1.31.

Meanwhile, corporate and financial indicators for 2023 stay roughly unchanged, with the majority of respondents expecting lower corporate profits, higher private residential property prices, and Singapore-dollar corporate bond spreads to be stable.

However, the respondents are more divided about these indicators for 2024.

For instance, expectations for corporate profitability saw a split by the same proportion between those who expect it to rise and those who predict a decline.

For both private residential property prices and Singapore-dollar corporate bond spreads, the respondents’ outlook for 2024 is finely balanced between those who predict a rise and those expecting no change.

Meanwhile, the respondents continue to point to tighter global financial conditions and elevated inflation as the main factors that could weigh on the financial market and lending conditions in Singapore, with a stronger currency and banking sector distress also starting to appear as potential downsides.

On the flip side, factors that could improve market conditions include less restrictive global financial conditions and capital inflows, although the number of respondents who believe this are fewer.

At the same time, more economists feel that easing inflation could help drive markets higher.

The Singapore economy grew by 0.4 per cent year on year in the first quarter of 2023, moderating from the 2.1 per cent expansion in the previous quarter. In late May, the Ministry of Trade and Industry maintained its 2023 GDP growth forecast at 0.5 per cent to 2.5 per cent.

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