Singapore slashed the upper end of its growth forecast for 2015 after the economy shrank last quarter, signaling a softened outlook even as the government prepares for a general election. The currency slipped to its lowest in five years.
The growth forecast is now 2 percent to 2.5 percent this year, from 2 percent to 4 percent previously, the trade ministry said in a statement Tuesday. Gross domestic product fell an annualized 4 percent in the three months through June from the previous quarter, when it grew a revised 4.1 percent. That compares with an initial estimate for a 4.6 percent drop, which was also the median in a Bloomberg survey.
“Several key downside risks in the external economic environment remain,” the ministry said. “The global economy performed weaker than expected in the first half of 2015. For the rest of the year, global growth is expected to pick up gradually, although the pace of growth is likely to be uneven across economies.”
Singapore’s export-dependent economy has been hurt by slowing growth in China, while uneven recoveries in the U.S. and Europe have damped demand for Asian goods. Further volatility in China’s stock market could undermine Chinese spending while financial conditions could tighten more than expected in the region as the U.S. begins to raise interest rates, Monetary Authority of Singapore Managing Director Ravi Menon said last month.
The Singapore dollar fell 0.9 percent to 1.3938 against the U.S. currency as of 9.58 a.m. local time.
“We worry that the risk is on the downside,” said Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore. “The main worry is that the economy is still stagnating. There are more indicators to suggest that things are just as distressing as the global financial crisis.”
The government also trimmed its prediction for non-oil domestic export gains this year to 1 percent to 2 percent, from 1 percent to 3 percent previously.
Singapore’s manufacturing contracted an annualized 18.3 percent in the second quarter from the previous three months. Construction gained 2.9 percent, while services slipped 1.1 percent.
The economy expanded 1.8 percent last quarter from a year earlier, the slowest growth since 2012.
The central bank, which uses the exchange rate as its main monetary policy tool, resisted pressure in April to add to an unexpected January easing.
“This narrowed growth forecast lies within our planning parameters of the current exchange-rate policy,” Jacqueline Loh, a deputy manging director at the MAS, told reporters today. “The current stance of a modest and gradual appreciation of the Singapore dollar remains appropriate to ensure medium-term price stability.”
The current policy stance remains appropriate, Menon told reporters on July 21 at the release of the central bank’s annual report. The monetary authority is scheduled to release its next policy decision in October.
The ruling People’s Action Party is gearing up for an election that may be called soon. The PAP in recent years has sought to shore up support among voters by boosting spending on lower-income families and the elderly after losing some districts in the 2011 ballot.