Singapore’s economy expanded at its slowest pace in a decade in 2019, a downturn that could have implications for the long-ruling People’s Action Party (PAP) at snap elections expected later this year.
The US-China trade war, weaker global and Chinese economic growth, and a cyclical downturn in the electronics sector rattled the city-state’s export-oriented economy last year. Singapore’s gross domestic product (GDP) grew just 0.7%, down sharply from 3.1% in 2018.
With an expansionary budget anticipated in February and a general election expected to be called within months, fourth quarter data points to a modest recovery in 2020 that will depend largely on an array of uncertain external factors.
“Despite the lackluster growth performance, the economy is slowly getting out of the woods,” said Irvin Seah, senior economist with DBS Bank in Singapore. “Barring any unforeseen negative shocks, growth momentum is expected to pick up gradually in the coming quarters.”
Strong service sector activity, a turnaround in global trade and new demand for electronics component exports for global 5G implementation are seen as key drivers of a 2020 recovery.
While fiscal support to bolster growth is expected from the upcoming budget, any upturn will be reliant on the health of the city-state’s exports, which were equal to 176% of GDP in 2018, the highest in Southeast Asia according to World Bank data.
Prime Minister Lee Hsien Loong, who reportedly intends to step down after the coming polls and before his 70th birthday in 2022, said in his annual New Year message that, while Singapore sidestepped recession in 2019, the economy is growing “less vigorously than we would like.”
The 67-year-old premier, an outspoken proponent of free trade multilateralism, has stuck to defending globalization amid the rising tide of US-led protectionism.
He said Singaporeans “must resist the temptation to turn inward” while warning of “nativism and chauvinism, and sectarian strife” fueled by anti-establishment political upheavals abroad.
“Globalization has benefitted Singapore enormously. A Singapore turned inwards cannot survive,” Lee said. “We are in a better position than most countries, because for decades we have toiled to improve our people’s lives. And we continue to make steady progress, year after year.”
That message is bound to resonate with much of Singapore’s electorate, who have traditionally rallied behind the ruling PAP – the longest-governing incumbent party in Southeast Asia – during periods of economic uncertainty, even as the city-state grapples with growing social stratification and rising living costs.
While few see the ruling PAP losing its decades-old parliamentary supermajority in the coming election, Lee cast the impending polls as a “tough fight” in November, when he called on PAP members to prepare for a face-off against Singapore’s disparate but energized opposition.
Four of the small opposition parties – the Singaporeans First party (SingFirst), Reform Party (RP), People’s Power Party (PPP) and Democratic Progressive Party (DPP) – recently announced an alliance that will see them contest under one banner. All, however, have a poor electoral track record.
While it’s unclear to what extent the economic downturn will fuel support for opposition parties, an unpopular goods and services tax (GST) hike from 7% to 9% planned for after the election is expected to be a lightning rod. It’s also unclear whether some of the opposition’s most familiar faces will be contesting at all.
Three key officials of the Workers’ Party (WP), Singapore’s only parliamentary opposition party, faced trial in 2019 for failing in their fiduciary duties toward the care of two town councils controlled by the party, claims the trio has said are unfounded.
WP is in the process of appealing a High Court ruling handed down in October that required the three opposition parliamentarians to pay damages exceeding S$33.7 million (US$24.9 million), though the final payable sum has yet to be determined. Failure to settle the fine could lead to them losing their parliamentary seats and being unable to stand for election.
Though Singapore’s next general election must be held by April 2021, there are strong indications that a snap poll will be called earlier, as has happened in recent electoral cycles. In August, Lee convened a special committee tasked with a review of the city-state’s electoral boundaries, a key indicator of a looming vote.
The election will carry further significance given that Lee’s anointed successor, 58-year-old Deputy Prime Minister Heng Swee Keat, and others from the PAP’s fourth generation, or “4G”, leadership will be front and center as the PAP campaigns for a 15th consecutive term that would extend its hold on power to a sixth decade.
Heng, who is also finance minister, will deliver the 2020 budget statement on February 18.
Following a string of successive fiscal surpluses, analysts expect the government to dip into its reserves and offer up a substantial fiscal package to assist displaced workers and small and medium-sized enterprises (SMEs) as they ride out trying global economic times.
“The budget is likely to target job creation and assisting firms to overcome difficulties caused by external factors, such as trade dispute between US and China and Brexit,” Tan Khay Boon, an associate faculty in economics at the Singapore University of Social Sciences (SUSS), told Asia Times.
“With the conservative approach by the government, it is likely that the government may allow a small budget deficit,” he added. While Tan believes “generous handouts are less likely,” he foresees the budget including rebates for utilities, income tax and GST, as well as a wage credit scheme the government has used previously to subsidize salary boosts.
Singapore’s Ministry of Trade and Industry (MTI) will release preliminary GDP estimates for the fourth quarter and the whole of 2019 next month. But MTI’s flash estimates indicate growth at 0.8% in October to December compared to the same period a year ago, a sliver better than the revised 0.7% growth recorded in the third quarter.
Based on those estimates, authorities expect growth of anywhere between 0.5% to 2.5% in 2020, a broad range underscoring the degree of uncertainty facing forecasters.
DBS Bank, Singapore’s largest bank, estimates a 1.4% expansion for 2020. Senior DBS economist Seah said that while the bellwether Asian economy can expect a “tepid recovery”, the outlook for its hard-hit manufacturing sector will remain challenging.
Manufacturing has suffered four consecutive quarters of contraction due to weakened demand, tumbling 2.1% on a year-on-year basis in the fourth quarter after a smaller third quarter decline of 0.9%.
The sector, especially electronics manufacturing, provides components and other parts to supply chains worldwide and is a key growth engine for the city-state.
“While the worst could be over, global demand remains fragile and ongoing trade talks between the US and China is still a risk factor,” Seah noted. “The phase one deal marks a significant de-escalation of the trade dispute but not the end of the trade war. High tariff rates remain a huge barrier to free trade and growth.”
SUSS’s Tan points to instability in the Middle East resulting from the US-Iran crisis and an associated oil price rise as well as a possible widening of the US-China trade dispute as risk factors that could further reduce Singapore’s trade volume.
“Manufacturing sector is still likely to drag the growth of Singapore due to weak demand for electronics,” said Tan. “The domestic demand for services, supported by a healthy labor market, is likely to be the engine of growth for 2020. The construction sector may play a supporting role but its weight is too low for major contribution.”
Seah agreed that further improvement in the services sector, which is projected to have modestly expanded by 1.1% in 2019 and contributes around 70% of GDP according to 2017 data, will be key to lifting Singapore’s overall economic performance in 2020.