Spore’s GDP growth fell by -0.7% in 1Q20, but likely to worsen in 2Q20

Singapore’s GDP growth in 1Q20 fell by 0.7% yoy from an expansion of 1% in 4Q19, but better than preliminary reading of -2.2%. This was the first decline in GDP growth since 2Q09. The decline in growth during the quarter was due to contractions in wholesale & retail, transportation & storage and accommodation & food services sectors mainly due to the negative impact of the Covid-19 outbreak. The Ministry of Trade and Industry (MTI) noted that the outlook for the Singapore economy remains weak because of prolonged supply disruptions, dampened domestic economic activity due to Circuit Breaker measures implemented as well as manpower shortages which will continue to negatively impact construction and marine & offshore engineering. As a result, MTI lowered its 2020 GDP growth forecast to a range of between -4% to -7%, compared to -4% to 1% previously. In the same week, despite the weak domestic demand and services growth, Singapore’s industrial production posted its second month of double-digit growth of 13% yoy in April compared to 16.5% in March. Sustained rise in output in April was mainly driven by higher production of biomedical manufacturing attributed to the pharmaceuticals segment likely as a result of higher demand for medical products on the back of the ongoing outbreak. We believe demand in the biomedical manufacturing cluster will likely be sustained moving forward and this will be supportive of Singapore’s industrial production in the coming months as this cluster accounts for 17.9% of the total IPI basket. However, there may be still be downside risks for remaining production clusters especially the electronics cluster which makes up a larger portion of total production of 39.3% led by weaker external demand.

As for inflation, Singapore’s headline CPI declined in April by 0.7% yoy from 0% in March, its first decline since October 2016. Meanwhile, core inflation contracted for the third consecutive month by 0.3% yoy in April from -0.2% in March. The decline in headline inflation in April was mainly due to the sharper drop in costs of private transport, services as well as retail and other goods. Going forward, inflation will likely remain weighed down by low global oil prices. Besides that, softer labour market conditions may also contribute to lower demand-pull inflation while containment measures in Singapore as well as in other countries will also weigh on costs of services in the coming months amid lower holiday expenses and air fares. Furthermore, MAS and MTI in a joint statement guided that it anticipates both headline and core-inflation to average between -1% and 0% in 2020.

Separately in Thailand, industrial production declined for the twelfth consecutive month by 17.2% yoy in April from -10.5% in March. During the month, lower output was dragged mainly by larger drop in production of motor vehicles, petroleum products, machinery and electrical equipment.

Source: Affin Hwang Research - 29 May 2020