The Singapore economy grew by 4.4% year-on-year (y-o-y) in Q1 2018, an acceleration from the annual growth rate of 3.6% in 2017. However, most analysts think economic growth will ease from this point on over the course of the year. The consensus view is for GDP growth to hover around 3.0% this year.
The slowdown in headline growth for the rest of 2018 stems mainly from the external front. Export growth – which surprised to the upside last year on the back of improving global trade – could slow as China’s import demand eases. An escalation of US-China trade frictions may also weigh on growth prospects given Singapore’s role in the region’s supply chain. Second, the upturn in the global electronics cycle is entering a more mature phase so demand for electronic products will also moderate.
On the domestic front, households have been resilient despite weak labor market conditions and negative wealth effects from four years of falling house prices. A range of indicators suggests that the labor market has been recovering since H2 2017 and in 2018, employment gains are likely to be driven by the services industries (which accounts for 70% of employment). This should support modest wage growth and consumer spending.
On the housing front, demand has been improving since H2 2017 following a relaxation of some of the cooling measures put in place during 2009-13. Property sales on the secondary market have been ticking up and overall house prices rose by 5.4% y-o-y in Q1. While the strong activity may reflect some buyers bringing forward purchases ahead of an increase in the stamp duty for million-dollar homes, underlying demand conditions are strengthening – the vacancy rate is edging down and improving labor market outcomes will be supportive of housing demand. That said, the oversupply will take time to unwind.