Singapore: GDP growth inches down in the second quarter
GDP reading: A second release confirmed that GDP growth eased to 2.9% year on year in the second quarter from 3.0% in the first quarter. On a seasonally adjusted quarter-on-quarter basis, economic growth was steady at Q1’s 0.4% in Q2.
Drivers: Private consumption remained the driving force of the economy, with growth edging up to 6.5% in Q2 from 6.4% in Q1 and marking the best reading since Q4 2022. Additionally, fixed investment rebounded sharply to 1.7% in Q2 from a 2.2% decline in Q1. Less positively, growth in public expenditure slowed to 3.1% (Q1: +6.3% yoy), weighing on the overall result.
On the external front, exports of goods and services rose 7.5% in the second quarter, up from 5.9% in the first quarter; stronger demand for integrated circuits and personal computers outweighed plummeting growth in tourist arrivals. However, the expansion in imports accelerated to 11.2% in Q2 (Q1 2024: 7.8%). Accordingly, net exports dragged on growth in Q2, declining 9.2% year on year compared to Q1’s 3.9% fall.
GDP outlook: Annual GDP growth is set to decelerate marginally from Q2 in the coming quarters. That said, our panelists anticipate the economy to grow at more than double the rate of 2023 over 2024 as a whole on the back of a rebound in the electronics sector, increased government spending, and resilient private consumption supported by declining inflation. Escalating U.S. trade barriers impacting China’s economy pose significant downside risks for the economy, while stronger-than-expected U.S. growth is an upside risk.
Panelist insight: Commenting on the release, Euben Paracuelles and Charnon Boonnuch, analysts at Nomura, stated:
“Our forecast pencils in GDP growth improving to 3.1% y-o-y in H2, on average, from 3.0% in H1 […] premised on our view that the global tech turnaround will significantly boost manufacturing output, alongside new capacity coming on-stream in the pharmaceuticals sector. Services will likely also hold up when industrial output is improving, making headline GDP growth more broad-based.”
United Overseas Bank analyst Jester Koh added:
“Tight financial conditions stemming from elevated interest rates in the US/EU may temper the extent of improvement in externally-oriented sectors (manufacturing, wholesale trade, transportation & storage) in the near-term although these sectors could stage a more meaningful recovery in 4Q24 should major central banks in advanced economies begin or continue to lower policy rates, which may stimulate investment and consumption activity abroad. The financial services sector could also benefit from a lower interest rate environment.”