Some way to go before broad-based recovery in sight: Economists
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SINGAPORE — Recent data has shown that prospects for the manufacturing sector have improved, and the Monetary Authority of Singapore (MAS) said in its Macroeconomic Review on Thursday (April 27) that firm external demand will continue to benefit the semi-conductor and precision engineering industries.
In contrast, some segments in the services sector such as retail and food are expected to face headwinds as discretionary spending remains weak due to a subdued labour market. Apart from cyclical developments, the retail sector has had to adjust to structural factors, including the rise of e-commerce.
Economists note that there is still some way to go before a broad-based recovery in the economy can be seen.
“The economy now is narrowly based. The sectors that are seeing growth are confined to trade-oriented sectors and the services sector has not moved in sync. We are still not at the stage to see a strong upturn in services. Demand is still subdued and the labour market is soft,” said ANZ economist Ng Weiwen.
CIMB Private Banking economist Song Seng Wun noted some improvement in the services sector, such as stronger tourist arrivals and stabilizing hotel room rates.
“Overall there are signs of growth but we are not seeing a strong visibility in growth just yet. The quality of growth is still not desirable yet. There are still some sectors facing headwinds. We have to see that, one by one, the weaker sectors starting to improve, before we can say its broad-based recovery. Only then will we see stronger job numbers,” he said.
The MAS said in its review on Thursday that while the Singapore economy had continued to expand over the last two quarters, the growth was volatile and uneven across sectors.
“As the upswing of the global IT cycle gained momentum in late 2016, the trade-related sectors turned up in tandem and helped to anchor overall GDP growth. Meanwhile, activity in the sentiment-sensitive segments of financial services was strong, which buoyed the modern services cluster in the fourth quarter, but this waned in early 2017,” it said.
In the latest industrial production report released by the Economic Development Board on Wednesday, manufacturing output rose 10.2 per cent in March, with the electronics cluster expanding by 37.7 per cent year-on-year. The growth was largely driven by the semiconductor segment, which posted a robust growth of 54.6 per cent.
Trade-related sectors should continue to benefit from the faster pace of global economic activity, the MAS said in its review, adding that the stronger-than-expected upswing in the global IT cycle is also set to boost electronics production within the Asian region, which could result in a further uplift to intra-regional trade.
“Moreover, emergent signs of a pickup in capital expenditure in the US, including on IT equipment, will raise end demand for electronic products and components. Concomitantly, the planned investments in China’s fabrication capacity will also support demand for Singapore’s semiconductor equipment manufacturers,” it said.
However, the MAS noted that retail and food services sectors, in particular, would face both cyclical and structural challenges amid a soft labour market and subdued consumer confidence, as well as greater competitive pressures. Even though current headwinds will keep outturns in the retail sector subdued in the near term, retailers are seeking to re-position themselves to better capitalise on structural developments that are reshaping their business environment, the central bank added.
The MAS also suggested that local retailers should look beyond the domestic market and traditional brick and mortar distribution channels for the next phase of their expansion.
“With greater Internet penetration across the region, traditional brick and mortar retailers can unlock new income streams by utilising e-commerce channels,” it said.
