Real GDP Growth in Thailand and Singapore Dragged by Trade Tension

Singapore’s real GDP growth slowed for the fourth consecutive quarter to 1.2% yoy in 1Q19 (1.3% in 4Q18), its slowest yoy growth since the last contraction of 1.2% in 2Q09. This was weighed down by growth in the manufacturing sector, which declined by 0.5% yoy in 1Q19 (+4.6% in 4Q18), its first contraction since 1Q16, amid weaker global semiconductor and semiconductor equipment demand. Growth in the wholesale and retail trade also declined for the second straight quarter to 1.8% yoy in 1Q19 (-0.8% in 4Q18). The country’s Ministry of Trade and Industry (MTI) highlighted that export-oriented sectors, like the manufacturing sector and wholesale trade and transportation & storage sectors, will be most affected by external headwinds going forward. This includes i) the rise in trade tensions which could impact business confidence and investment as well as consumer spending, ii) lower than expected growth in China and iii) possibility of a nodeal Brexit. Similarly, we believe growth in electronics (E&E) export may also remain weak as reflected by the recent slowdown in global semiconductor sales, which fell for the third consecutive month by 13% yoy in March (-10.6% in February). MTI has revised its 2019 GDP growth projection lower to 1.5 to 2.5% compared to 1.5 to 3.5% previously. We believe that if Singapore’s real GDP growth slows further in 2019, this may prompt the Monetary Authority of Singapore (MAS) to ease its monetary policy in October 2019, after maintaining the slope of the S$NEER policy band in the April meeting. Besides that, MAS has room to ease given the low and stable inflation. Headline inflation in April rose to 0.8% yoy (0.6% in March) while core-inflation eased to a one-year low of 1.3% (1.4% in March) and is expected to settle near the mid-point of MAS’ forecast range of 1-2% in 2019.

In Thailand, real GDP growth in 1Q19 slowed for the fourth straight quarter to its slowest level since 4Q14 of 2.8% (3.6% in 4Q18). Growth was dragged mainly by the decline in exports of goods and services of 4.9% yoy (+0.7% in 4Q18). Meanwhile, private consumption and total investment eased to 4.6% and 3.2%, respectively (5.4% and 4.2% in 4Q18, respectively). In contrast, government expenditure rose 3.3% yoy in 1Q19 (1.4% in 4Q18) led by higher compensation of employees and social transfers. Among the headwinds moving forward is the political uncertainty as a new government has yet to be formed following the March 24 election. If prolonged, this could weigh on government spending and impact consumer and investor sentiment. Besides that, the escalating trade tensions may impact trade and its export-oriented industries, which in turn, dampened growth given that exports accounted for 71.3% of GDP in 1Q19. In April, export growth declined for the second consecutive month by 2.6% yoy from -4.9% in March. Amid these risks, the National Economic and Social Development Council lowered its 2019 growth projection to 3.3%-3.8% from 4%.

Source: Affin Hwang Research - 24 May 2019