Based on advance indicators for Q2 2019, Singapore’s GDP barely increased in y/y terms (+0.1%) and declined by 3.4% q/q sa (down from +1.1% and 3.8%, respectively, in Q1). GDP contraction is due to the weak performance of the manufacturing sector, which is hard hit by the effects of US-China trade tensions and weakening global tech cycle.
Singapore is highly vulnerable to contagion effects of US trade hikes on Chinese imports due to its large dependence on tech exports and integration Asian value chains. Exports have contracted since last November and economic growth has slowed. Monetary policy tightening, which started last year, should pause in the short term while the government is expected to increase public spending to support activity. Its fiscal room for maneuver is significant given the strength of public finances. This will also enable the authorities to continue to implement their strategy aimed at stimulating innovation, enhance productivity and improve Singapore’s medium-term economic growth prospects.
Singapore is a small territory with few natural resources. It enjoys a strategic geographical location in Asia and a world-leading, technically competent and productive workforce. Singapore ranks as one of the world’s most open economies and well-run states. Over the past decade, the focus of Singapore’s economic policy has shifted to maintaining its competitiveness in attracting trade and investment flows by building a more technology-driven, innovation-based growth model. Singapore’s real GDP growth has been more volatile since the early 2000s. Singapore is vulnerable to the impact of the US-China trade conflict and global trade weakening given its very high degree of trade and financial openness (exports represented more than 200% of GDP in 2019 and trade-related sectors account for more than 50% of GDP). The city-state then was very hard hit by the COVID-19 shock, with an economic contraction of -5.4% in 2020. However, Singapore’s strong macroeconomic fundamentals, with solid external and fiscal accounts, and sound policy management represent comfortable cushions against shocks.
