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Singapore’s economic growth prospects are looking brighter in 2024 after experiencing a soft patch in 2023. Advance estimates (AE) showed a slight uptick in real GDP growth to 0.4% quarter-on-quarter seasonally adjusted (QoQ sa) in 2Q24, from an upwardly revised rate of 0.3% QoQ sa in 1Q24. Supported by favourable base effects, the economy expanded by 2.9% year-on-year (YoY) in 2Q24. The upward revision of growth in 1Q24 to a 3.0% YoY increment also stood out. This suggests economic growth registered at 3.0% YoY in 1H24, turning around from the muted performance of just 1.1% for 2023.

We are raising our 2024 growth forecast to 2.7% from 2.2%. We factor in the growth performance in 1H24 and our expectations for a further pick-up in sequential QoQ sa expansion in 2H24. External-led sectors will likely be supportive, with manufacturing and modern services rebounding and trade-related services remaining in expansion. This is even as we remain vigilant on downside global risks such as supply chain disruptions from lingering geopolitical tensions and volatility arising from the timing and extent of upcoming US interest rate cuts. 

Electronics to drive manufacturing recovery

Singapore’s manufacturing sector rebounded in 2Q24, and we expect a gradual recovery in 2H24. AE showed a reversion in factory output to the expansion of 0.6% QoQ sa and 0.5% YoY in 2Q24, bouncing from the transitory contraction of 5.3% QoQ sa and 1.7% YoY in 1Q24. Notably, electronics, which accounts for almost half of overall manufacturing production, is catching up after correcting in 1Q24.

The positive sentiment among Singapore’s electronics firms supports our expectations for improved prospects. The electronics manufacturing purchasing managers index (PMI) not only expanded for the eighth straight month but quickened for the fourth consecutive month to 51.2 as of June 2024. We continue to see signs of improved external demand for electronics products from gains in new orders, new export orders, and backlog orders amid the ongoing global tech cycle upturn. The global tech cycle will likely be underpinned by the replacement of smartphones and PCs, as well as the broadening use of artificial intelligence (AI) applications to consumer devices that are for everyday use.

Supportive external-oriented services sector

Singapore’s overall services sector expansion cooled in 2Q24 but remains in good shape, in our view. Overall services growth cooled to 0% QoQ sa and 3.3% YoY in 2Q24 from 2.2% QoQ sa and 4.3% YoY in 1Q24. External-oriented services clusters outperformed in 2Q24.

The trade-related ‘wholesale & retail trade and transportation & storage cluster extended its expansion with 0.7% QoQ sa and 2.5% YoY in 2Q24, albeit slower than 2.7% QoQ sa and 3.9% YoY in 1Q24. We expect trade-related services to be supported by the gradual recovery in global trade and Singapore’s manufacturing activity.

Activity in the modern services cluster (comprising of information & communications, finance & insurance, and professional services) rebounded to 1.4% QoQ sa growth in 2Q24 from a contraction of 2.8% QoQ sa in 1Q24. Amid favourable base effects, the cluster grew robustly by 5.6% YoY in 2Q24, steady vs. 5.7% YoY in 1Q24. Focusing on financial services, we expect activity to be sustained sequentially.

However, growth in the ‘Accommodation & food services, real estate, administrative & support services, and other services’ cluster shrank by 0.5% QoQ sa in 2Q24 from the growth of 2.3% QoQ sa in 1Q24. This translated to a slower YoY increase of 1.9% in 2Q24 vs 3.0% YoY in 1Q24. We were unsurprised by the dampened activity in 2Q24. We reckon that this was likely due to the fading strength in the tourism-linked clusters, with food services contracting and accommodation expanding at a slower rate. Looking ahead, we expect tourism-related activity to be supported by a return of Chinese tourists during their summer break in July and August 2024, as well as an overall uptick in international visitors for the Singapore Grand Prix in September 2024.

Major uncertainty looming

The outlook appears sanguine cyclically, although with near-term downside risks such as supply chain disruptions from lingering geopolitical tensions and volatility from the timing and extent of upcoming US interest rate cuts. However, beyond that, it looks foggy. The US presidential elections in November 2024 is a major uncertainty and event that can shape the global economic landscape for years to come. The polls suggest increased odds of Trump securing a victory. The scenario of a second Trump presidency, in which the administration might impose higher tariffs of as high as up to 60% on Chinese imports and 10% on imports from other countries, would be significantly negative for global trade and Singapore’s highly trade-dependent economy.

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Chua Han Teng, CFA

Economist - Asean

[email protected]

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