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December 2024
Sanguine economic prospects for Singapore but risks lie ahead
Singapore’s official 3Q2024 GDP growth rate was revised up more than expected from an advance estimate of 4.1% YoY to 5.4% YoY. This marked the strongest YoY growth since 4Q2021 (7.9% YoY) and it is higher than the Bloomberg consensus forecast of 4.7% YoY and our forecast of 4.8% YoY.
The growth drivers in 3Q2024 were primarily manufacturing, wholesale trade and the finance & insurance sectors, aided by the electronics recovery. This brought GDP growth for the first three quarters to 3.8% YoY, which outshined the 0.7% rate seen in the first three quarters in 2023. All three main engines of growth saw an upward revision from the 3Q2024 advance estimates.
All engines firing!
At the sectoral level, manufacturing growth was upgraded to 11% YoY in 3Q2024 as we anticipated, up from the advance estimate of 7.5%. This is the best manufacturing performance since 4Q2021 (16.0% YoY) and was a turnaround from two consecutive quarters of contraction in 1H24, mainly aided by the recovery in electronics.
Both the construction and services sectors were similarly upgraded to 3.7% YoY and 4.0% YoY respectively, up from 3.1% and 3.3%.
Notably, the finance & insurance sector expanded 5.4% YoY, while construction grew 3.7%, boosted by the global monetary policy easing narrative as well as infrastructure projects respectively.
The underperformers within the services sector were the retail trade and food and beverage services - both fell for the second straight quarter by 0.7% YoY as Singaporeans continued to travel overseas even as inbound visitor arrivals remained slower than anticipated coupled with weak tourist spending. Real estate also declined for the second consecutive quarter by 0.2% YoY, while the arts, entertainment & recreation industry also sank into the red at -4.6% YoY, reversing the 4.5% expansion seen in 2Q2024 and a far cry from the 23.3% growth registered in 1Q2024 amid the concert fever then.
2024 full-year growth forecast revised up
MTI revised up its 2024 full-year growth forecast from 2-3% to 3.5% and tips 2025 growth at 1-3% YoY. MTI cited that “on balance, Singapore’s overall external demand outlook is expected to remain resilient for the rest of 2024”, with the ongoing global electronics demand recovery continuing to support the manufacturing sector.
Outward-facing services sectors like wholesale trade should also be supported, but tourism-related and consumer-facing sectors like accommodation, retail trade and food & beverage services industries may continue to be weigh down.
Looking ahead, MTI expects growth in Singapore’s key trading partners to ease slightly from 2024 levels, especially for the US and China, and flagged that global economic uncertainties have risen, including uncertainty over the policies of the incoming US administration, with the risks tilted to the downside.
The downside risks cited included (a) a further escalation of geopolitical risks (including in the Middle East) as well as trade tensions among major economies which could lead to higher prices and production costs, as well as greater policy uncertainty, which in turn could weigh on global investment, trade and growth, and (b) disruptions to the global disinflation process which could prompt tighter financial conditions for longer and the desynchronisation of monetary policies which could trigger latent vulnerabilities in financial systems.
Domestic labour market resilient
For the domestic labour market, the overall unemployment rate dipped to 1.8% in 3Q2024 as employment accelerated from 15k in 2Q2024 to 26.7k in 3Q2024. Labour productivity also improved, driving overall unit labour costs down to 0.9% in 3Q2024 versus 7.9% a year ago, which should be welcome music to businesses, especially SMEs that are facing elevated costs amid a challenging economic environment.
Despite softening expectations, the domestic labour market has remained very resilient year-to-date, which coupled with the declining interest rate environment and still ample liquidity may have partially underpinned the recent pickup in private residential property transactions amid new launches.
Given the myriad of external headwinds including geopolitical tensions and economic uncertainties, especially in the run-up to the US elections and bouts of market disappointment over China’s recovery notwithstanding policy stimulus, Singapore’s fixed asset investment also slowed to just S$1bn (2Q2024: S$3.7bn) – this brought the first three quarters to S$6.4bn (first three quarters of 2023: SGD11.0bn), which barring a last-minute surge in 4Q2024, may mean full-year 2024 could fall well short of the $12.7bn seen last year.
Caution ahead
With incoming US president Trump threatening punitive trade tariffs against China and potentially a universal 10-20% tariff against the rest of the world, the global trade and growth environment may turn even more challenging in 2025.
The US economy is expected to moderate amid a slowdown in consumption growth in line with cooling labour market conditions, although investment growth may be aided by expectations of Trump’s policy promises for tax cuts and deregulation in selected industries.
Meanwhile, China’s growth is also tipped to moderate, although continued policy stimulus should cushion some of the adverse effects of tariff challenges. ASEAN may remain resilient, aided by the upswing in global electronics demand, but it is unlikely to be fully immune to any potential trade fallout if Trump imposes tariffs.
Moreover, with the recent escalation in geopolitical hotspots, namely Russia-Ukraine and the Middle East, and Trump’s push to Make America Great Again through onshoring manufacturing and strategic decoupling from China, the potential impact on global supply chain recalibration and business capex is highly uncertain going forward.
Our 4Q2024 GDP growth forecast now stands at 3.1% YoY, which would bring full-year 2024 growth to 3.6% YoY given the better-than-expected 3Q2024 growth.
For 2025, we keep our 2.7% YoY GDP growth forecast but stay cognizant of the higher 2024 growth base as well as risks pertaining to what happens after Trump takes office on 20 January 2025.
If Trump’s policy shifts on tariffs, immigration and tax etc. do materialise and are inflationary as anticipated, the Fed’s intended rate cut trajectory could be impacted, and this could in turn complicate the 2025 growth and inflation outlook for the global economy, including Singapore.
The next milestone to watch could be Budget 2025. Cost of living and job security are Singaporean’s top concerns, so additional fiscal assistance could potentially be on the cards.
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