(Bloomberg) -- Singapore’s economy will slow in 2019, reflecting a weakening in key trading partners and a further cooling of the electronics sector, the central bank said.
The city state is set to expand slightly below the midpoint of a 1.5 percent to 3.5 percent forecast range for this year after growing 3.2 percent in 2018, the Monetary Authority of Singapore said in its Macroeconomic Review on Friday. The expansion will come in slightly below Singapore’s potential growth after two years of outpacing that yardstick, according to the report.
“Global growth eased considerably in Q4 2018 as a deceleration in China rippled out to other economies via weaker trade flows, exacerbated by trade tensions,” according to the report, which is released twice a year and contextualizes MAS policy decisions. “This has carried over into 2019.”
Inflation should also step down this year, due to domestic electricity market liberalization, more subdued oil prices, and generally benign external price pressures, the report said. The authority’s core inflation gauge is set to slide to the middle of a revised 1 percent to 2 percent range.
The more subdued forecasts reflect a global outlook that has soured since the end of last year. The MAS sees slower domestic growth heavily influenced by weakening in its key trading partners, with final demand impact from China, the ASEAN-5 economies, the Euro area, and the U.S. accounting for about 30 percent of Singapore’s GDP.
While the impact of the slowdown in China, Singapore’s biggest trading partner, will weigh heavily, a downturn in the tech cycle also will drag on the city state. After the electronics industry bolstered overall trade over the prior two years, global chip sales turned to negative year-on-year growth in December and should remain soft this year amid oversupply and a weakening Chinese market, the MAS reported.
At the same time, Singapore’s labor market should remain firm on the back of a broadening in employment growth in the second half of last year. The MAS sees particular strength in information and communications technology roles amid a national push for digitalization.
The MAS kept monetary policy unchanged earlier this month, in line with an ongoing global trend in monetary policy pauses as growth and inflation under-perform. The MAS retained a cautionary tone about U.S.-China trade friction.
“Trade tensions remain a key downside risk for the economic outlook, although the risks could come on the upside as well: a meaningful reduction in tensions would boost confidence and spur investment,” according to the report.
