SINGAPORE: Subdued global growth and high interest rates that are deterring investment and consumption will hinder Singapore’s trade-dependent economy, according to a new report.

It estimated that the economy is set to expand by 2% in 2024, markedly under the forecast 2.6% growth for the world economy, which would be the slowest pace since the end of the pandemic.

The forecast compares with the Trade and Industry Ministry’s projection of growth coming in at 1% to 3% in 2024, aided by a gradual pickup in trade-related industries led by manufacturing, while a recovery in air travel and tourism would boost domestic-oriented sectors.

Singapore’s gross domestic product expanded by 2.7% year-on-year in the first quarter of 2024, up on the 2.2% rise in the previous three months.

British research house Oxford Economics, which compiled the report for the Institute of Chartered Accountants in England and Wales, said electronic exports are likely to remain on an uptrend due to rising global demand, particularly in the artificial intelligence (AI) sector, where businesses are heavily investing in semiconductors.

Worldwide sales of semiconductors increased by 15.2% in the first quarter of 2024.

However, Singapore’s gains in electronic exports, like most of its South-East Asian peers, have trailed the strong recovery in South Korea and Taiwan, which command the lion’s share in AI-related chip sales.

Real exports, adjusted for inflation and in Singapore dollar terms, rose sharply by a seasonally adjusted 3.7% month on month in April, the report said.

This was mainly fuelled by the 7.6% jump in non-oil domestic exports (Nodx) following an 8.5% contraction in March.

The growth in Nodx was due to similarly sharp rises in both electronics and non-electronics.

“Electronic exports are likely to remain on an uptrend due to rising demand as the global electronics cycle continues to bottom out, and as businesses are starting to invest heavily in chips again to ride the AI wave,” said Oxford Economics.

Electronic Nodx continued to gain momentum, rising 21.09% in May after a 3.3% rise in April, according to Enterprise Singapore. The surge in May was the first double-digit growth in 22 months.

But a weak start to the year for non-electronic exports such as pharmaceuticals and electrical-circuit apparatus has kept overall Nodx subdued.

It fell by an annual 3.4% in the first quarter of 2024, more than the 1.4% decrease in the previous three months.

Oxford Economics said the services sector, the economy’s biggest employer, may also lose some of the momentum it has shown in recent months.

Services grew by 8.9% in the first quarter, up from 3% in the last three months of 2023, the May edition of the Economic Survey of Singapore showed.

Oxford Economics said the first-quarter services gains were driven by the tourism-sensitive accommodation and food-services sectors, amid concerts by pop stars such as Taylor Swift. Tourist arrivals reached 94% of pre-pandemic levels in the quarter.

“As this uptick in tourists could be attributed to concertgoers flocking to Singapore, part of the spike in services is expected to be reversed,” it said.

Hence, Singapore’s economic momentum is likely to be subdued, despite strong electronics exports, the report stated, noting: “With a softening labour market and high interest rates constraining business investments, it is unlikely for domestic demand to rise materially in the second quarter.

“Furthermore, as Singapore’s business investment tends to shadow exports closely, domestic consumption will be restrained in the face of uncertain external demand.”

The report projected economic growth across South-East Asia to come in at 4% in 2024, aided by the electronics sector recovery.

However, the forecast is below the 5% average in the five years prior to the pandemic, largely due to expected challenges in domestic consumption as interest rates remain higher for longer, said the report.

“Domestic consumption in South-East Asia was more resilient than expected in the first quarter of 2024. However, it is unlikely to drive growth in the coming quarter as tight monetary policy in the region is expected to restrain consumer spending.”

The report said the persistent weakness of most South-East Asian currencies against the US dollar is also likely to limit the option of boosting growth via monetary policy easing.

 - ANN