- We maintain our sanguine outlook for Singapore’s economic growth in 2024.
- 2Q24 real GDP growth was steady vs advance estimates at 0.4% QoQ sa and 2.9% YoY.
- External-oriented sectors are supporting the growth recovery in 2024.
- We expect a pick-up in sequential QoQ sa growth expansion in 2H24.
- Economic growth is also labour productivity-driven, which will contain labour cost pressures.
Below is a summary; for full report and detailed charts, please download the PDF
Singapore’s real GDP expanded by 0.4% on a quarter-on-quarter seasonally adjusted (QoQ sa) basis in 2Q24, compared to a slightly upwardly revised 0.4% QoQ sa in 1Q24. In year-on-year (YoY) terms, the economy grew by 2.9% in 2Q24 and 3.0% in 1H24, supported by favourable base effects. 2Q24’s steady headline growth rate vs advanced estimates was due to an upward revision to services, which offset some weakness in construction and manufacturing.
We maintain our 2024 growth forecast at 2.7%. This represents a turnaround from the muted performance of just 1.1% in 2023. Our forecast factors in the growth performance in 1H24 and our expectations for a pick-up in sequential QoQ sa expansion in 2H24. The growth recovery in 2024 is driven by external-oriented sectors such as manufacturing, trade-related services, and modern services like finance & insurance, with productivity gains.
Supportive growth outlook for external-oriented sectors
The economic performance of Singapore’s external-oriented sectors improved in 1H24. Looking ahead to the business outlook for 2H24, recent quarterly business expectations surveys by the Economic Development Board and the Singapore Department of Statistics indicate positive sentiments by Singapore's external-facing companies. None of these external-oriented sectors reported net negative expectations for 2H24 (see charts in PDF).
We therefore remain hopeful for a gradual manufacturing recovery, despite the choppy performance in 2Q24, and risks of supply chain disruptions from lingering geopolitical tensions. The manufacturing uptick should bode well for trade-related services, which are already benefitting from a revival in global trade activity. Modern services such as finance & insurance and information & communications are also likely to be supported by their respective cyclical and structural tailwinds. Singapore’s economic expansion in 3Q24 is likely to be resilient within its potential economic growth rate of 2.0-3.0% over the medium-term, as reflected by our in-house GDP nowcast model.
Productivity pick-up to contain labour cost pressures
Singapore’s improving economic growth in 2024 is driven by a recovery in labour productivity. The rebound in labour productivity will help to mitigate domestic labour cost pressures, which have been a major concern for Singapore’s businesses over the past two years in 2022 and 2023 (see ‘Singapore: Soft growth and elevated business costs’).
With easing labour market tightness, wage growth is likely to be contained. Resident average monthly earnings growth moderated to 4.1% YoY in 2Q24 from a strong 6.4% YoY in 1Q24, also due to fading large bonuses. We expect the combination of restrained wage increments and productivity upturn to result in much slower domestic unit labour cost (ULC) increment in 2024 compared to the preceding two years. While ULC growth would still be above the 2017-19 pre-pandemic average, the slowdown at least allays some concerns over the pace of manpower cost increase.
Overall, we expect cooler domestic labour cost increases to reduce the business cost pass-through to consumer prices. Together with moderate imported inflation helped by well-behaved global commodity prices and gradual Singapore dollar appreciation, we anticipate softer core inflation in 2H24. These factors inform our average core inflation forecast of 2.9% in 2024, falling from 4.2% in 2023.
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