Singapore: 2018 Macroeconomic Outlook

Aviva January 19, 2018 0
Singapore: 2018 Macroeconomic Outlook

The global economy has been on an uptick for close to 10 years now, will 2018 continue to be a good year for investors?

As we begin 2018, it feels like the Singapore economy is on an uptick. Headlines in local newspapers have reported a year-on-year (yoy) real GDP growth of 4.6% in the third quarter of 20171. It has been close to fourteen quarters, nearly three and a half years, ago since such levels of growth was reported.

A similar trend followed in the property market with the Urban Redevelopment Authority (URA) reporting that property prices finally climbed after 15 consecutive quarters of declines2. Even the local benchmark Straits Times Index (STI), is up close to 17.1% on a year-to-date basis3.

Are these just headline numbers meant to paper over the cracks in the economy or is a recovery gaining momentum?


What’s with all the hype about a higher GDP growth?

Much of the positivity that Singapore have experienced over the last four quarters has been on the back of the manufacturing sector, specifically the technology super-cycle.

Underscored by a great year for all smartphones, including the introduction of the iPhone X, Samsung’s recovery from its disastrous Note 8 and the continued growth of Chinese smartphone manufacturers, a super-cycle was formed in the electronics industry in 2017. Spearheaded by higher global demand for memory chips in automotive and the Internet of Things (IoT) sectors, the semiconductor industry expanded output.

An increase in orders in pharmaceutical sector further supported the performance of local manufacturers.

As observed in the Monetary Authority of Singapore (MAS) Economic Review 2017, the first two quarters of the boom, in the third and fourth quarter of 2016, was due to inventory adjustments, after six consecutive quarters of negative growth in global chip sales (Fig. 1).

Additionally, Singapore is not the only country benefiting from this spike. Korea and Taiwan, the leading technology hubs of the world, have also been enjoying the boom in global tech demand (Fig. 2).

Source: MAS Economic Review 2017

*QOQ SA Growth stands for Quarter-On-Quarter Seasonally Adjusted growth.
*MOM SA Growth stands for Month-On-Month Seasonally Adjusted growth.


The uneven growth components of Singapore’s GDP

While Singapore’s growth rate has been comparatively stellar, it has been narrowly defined by the technology sector. Any spillage to the other sectors appears to be weak at best. In 2010, when the economy has experienced a similar spike in electronics demand, “it went up as fast as it came down”.

Looking deeper into the growth components of Singapore’s real GDP, the growth came largely from the manufacturing sector (Fig. 3). In the last three quarters, the manufacturing sector (blue bar) has been the propulsion behind Singapore’s growth statistics.

Excluding the manufacturing sector, the rest of the sectors grew only 1.1% on average in the last three quarters. At this growth rate, the headlines would not have looked so rosy and expectations would not be this upbeat.


Fig.3: Uneven growth as manufacturing makes up more than 50% of Singapore’s GDP growth from 4Q2016 to 2Q2017

Uneven growth as manufacturing makes up more than 50% of Singapore’s GDP growth from 4Q2016 to 2Q2017

Note: GPI = Good producing industry. SPI = Service producing industry.
Source: Statistics Board of Singapore (Singstats)


High growth, high unemployment – An unmatched story

As Singapore, a city-state without natural resources advanced to a developed nation status, service production should be our major growth component. Historically, that has been the case, as business services, wholesale & retail trade and finance & insurance were the major components of growth (look at the grey, yellow and light blue bars in Fig. 3).

During then, we experienced some spill-over effects in the labour force, especially with the resident unemployment rate remaining low.  However, despite the recent high GDP growth rate, resident unemployment remains stubbornly high, at the range above 3.0% (Fig. 4). In the MAS Economic Review 2017, it was also noted that the significant growth in electronics sector does not match the insignificant growth in employment (Fig. 4 & 5).

Resident unemployment rate is likely to continue to remain at comparable levels, or even slightly higher, than the 2015/2016 period.


Fig.4: Rising GDP and rising unemployment

Rising GDP and rising unemployment

Note: LHS = Left hand side. RHS = Right hand side.
Source: Singapore Ministry of Manpower (MOM), Singstats


Fig. 5: Electronics super-cycle has little impact to overall growth in labour market

Electronics super-cycle has little impact to overall growth in labour market

Source: MAS Economic Review 2017


So, what can we expect in 2018?

It is very likely that we will see a moderation in GDP growth rates in 2018. This slower growth will likely be the result of two main drivers.

The first being the lower growth base in the previous period. The high growth rates in the last four quarters is largely due to the low base rates of growth that occurred a year ago. Therefore, even if Singapore continues to put in a similar performance in 2018, the growth rates would look flatter.

The second would be the potential contraction in the manufacturing sector. Growth in the manufacturing sector has already started to taper off, as we have seen two consecutive quarters of slower yoy growth rates (Fig. 6).

The non-oil domestic exports (NODX) also declined together with a sharp deterioration in electronics exports growth (Fig. 7 & 8). However, with oil prices stabilising, we could potentially see some support in 20184.

Fig. 6: Manufacturing growth rates have started to taper in Aug/Sep of 2017

Manufacturing growth rates have started to taper in Aug/Sep of 2017

Source: Economic Development Board of Singapore (EDB)

Fig.7: Non-oil domestic exports largest decline in September 2017
Non-oil domestic exports largest decline in September 2017

Source: EDB

Fig. 8: Electronics growth rates have declined sharply to -7.9%

 Fig. 8: Electronics growth rates have declined sharply to -7.9%

Source: EDB


In the semi-annual Macroeconomic Review published by MAS, it was also mentioned that there could be a moderation in growth rates in 2018, as the global economic recovery enters a more mature phase5. With the technology super-cycle correcting and weaker pockets of the economy likely to level off, investors should remain prudent going into 2018.


What you can do in 2018:

  • Understand property needs. Despite the recent improvements in prices, do not commit unnecessarily, or worse, overleverage on the hopes of even better outcomes.
  • Ensure 6-12 months of expense coverage ratio – which means you should ensure you have an emergency fund to cover six to 12 months of your expenses.
  • Maintain liquidity for investments when good opportunities arise.
  • Understand investments thoroughly and invest cautiously as equity markets are expensive now. In addition, upside may be limited going into 2018.
  • Be prudent with your cashflow and expenses in general.


Do you have any other thoughts on Singapore’s macroeconomic outlook? Share with us in the comments below!


1 Singapore’s GDP Grew by 4.6 Per Cent in the Third Quarter of 2017 – Ministry of Trade and Industry, 13 October 2017

2 URA releases flash estimate of 3rd Quarter 2017 private residential property price index – Urban Redevelopment Authority, 2 October 2017

3 Straits Times Index STI – Bloomberg Markets

4 Oil treads US$60 line to lift O&M stocks – Business Times, 01 November 2017

5 Economic Policy Group, Volume XVI, Issue 2 – Monetary Authority of Singapore, October 2017

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