Singapore’s 1Q2024 GDP growth was unchanged from its advance estimate of 2.7% year on year (0.1% quarter on quarter) and up from 2.2% YoY in 4Q2023.

This is the fastest YoY growth since 3Q2022 and was largely attributed to the construction (4.1% YoY) and services (3.9% YoY) sectors which offset weakness in the manufacturing sector (-1.8% YoY).

In particular, the arts, entertainment & recreation industry surged 22.8% YoY, likely thanks to the Swifties and the mutual visa-free arrangement with China. This in turn also supported the activities in the accommodation (14.4% YoY), retail trade (2.7% YoY) and even finance & insurance (6.5% due to the payment channel) industries.

Notably, the total number of air passengers handled at Changi Airport in 1Q2024 has exceeded its pre-Covid level, while the container throughput and sea cargo handled at Singapore’s ports also improved.

Downside risk

While the usual caveat of downside risks applies, the litany of risks has also evolved somewhat from the statement three months ago which centred around geopolitics, lagged effects of monetary policy tightening and idiosyncratic cost shocks (e.g. adverse weather events).

At this juncture, apart from geopolitics which remains front and centre on the risk horizon, the other two mentioned downside risks were disruptions to global disinflation leading to a high-for-longer interest rate environment and vulnerabilities in emerging markets due to the wide desynchronisation of monetary policy cycles with developed markets - contributing to volatility of capital flows and currency fluctuations.

2024 official growth forecast maintained

With 1Q2024 off to a good start, there was no change to the official 2024 growth forecast of 1-3% YoY or our house forecast of around 2% YoY.

The outlook by Singapore’s Ministry of Trade and Industry (MTI) also sounded a tad more upbeat, citing stronger-than-expected 1Q2024 GDP growth in both the US and China, as well as expectations that the manufacturing and trade-related sectors should see a gradual improvement over the rest of this year, aided by the demand for semiconductors from end-products like smartphones and PCs, as well as AI-driven demand growth, with positive spillover effects to benefit the precision engineering cluster and the machinery, equipment & supplies segment in the wholesale trade sector.

Note that Nvidia Corp had posted solid 1Q results and guided towards a bullish 2Q, which suggests that the global AI boom still had legs to run.

Outside of the US, recent trade data also pointed to a pick-up in demand and prices for smartphones, data-centre operators, and AI developers – for instance, semiconductor shipments for South Korea jumped 45.5% YoY in the first 20 days of May.

Apart from highly anticipated electronics recovery, the chemicals cluster is also projected to expand, partly attributable to capacity growth in sustainable aviation fuel. Singapore has mandated that flights departing from here will be required to use sustainable aviation fuel (SAF) from 2026 with a 1% uplift target and plans to raise it subsequently to 3-5% by 2030, according to the Civil Aviation Authority of Singapore.

Meanwhile, the aviation and tourism-related sectors should continue to benefit from the strong recovery in international visitors, with attendant spillovers into the consumer-facing sectors like retail trade and F&B.

Concurrently, the finance & insurance industry should also benefit from the projected easing in the global interest rate cycle in the form of support to banking and fund management fees and commissions, in addition to sustained tourist spending profiting the payments channel.

MAS on pause mode

The Monetary Authority of Singapore (MAS) remains on a prolonged pause mode, with the July Monetary Policy Statement (MPS) unlikely to yield any monetary policy recalibration while waiting for the more significant easing in core inflation in 4Q2024.

With the bumpy last-mile disinflationary process, and major central banks like the US Federal Reserve sounding more cautious about pre-emptive policy easing, Asian central banks are mostly on wait-and-see mode as well.

The domestic labour market remains resilient, but employment growth had cooled to 9,800 in 1Q2024, down from 11,600 in 4Q2023 and 106,200 for full-year 2023. Headline CPI rose a more subdued 3.0% in 1Q2024, compared to 4.0% in 4Q2023.

Trade forecast maintained

The official 2024 total trade and Non-Oil Domestic Exports (NODX) growth forecasts by Enterprise Singapore were both maintained at 4-6% YoY, but with downside risks for the NODX forecast which could come in at the lower end of the 4-6% range due to the weaker-than-expected 1Q2024 performance at -3.4% YoY (4Q2023: -3.4%).

Notwithstanding this, there will be anticipated NODX support from the electronics recovery in 2H2024, aided by consumer devices and AI servers, whilst the total trade outlook is cautiously optimistic following higher expected oil prices.

Supporting factors included the forecast improvement of global semiconductor revenue at 17.4% YoY in 2024 (versus 2023’s -11.7%) by Gartner, as well as the International Monetary Fund’s and World Trade Organisation’s 2024 forecast of global growth and global merchandise trade at 3.2% and 2.6% respectively.

We had already cautioned that while the NODX prognosis should gradually improve in 2H2024 on the back of an improvement in the electronics sector and also if China’s GDP growth stabilises, at this juncture, the lower end of the full-year 2024 NODX forecast of 4-6% may appear to be somewhat of a risk as the first four months NODX performance is already at a weaker-than-expected -4.9% YoY.