Global slowdown to weaken 2H22 GDP
- Singapore 2Q22 advance estimate rose 4.8% yoy (1Q22: 4.0%) aided by low base effects. On qoq SA basis, growth was stagnant at 0% (1Q22: +1.4%).
- In contrast, MAS recentred the mid-point of the S$NEER policy band upwards, essentially weighing the inflation risk more than growth slowdown.
- China’s recent reopening could boost exports temporarily, aiding growth. That said, global outlook remains dim. We maintain 2022 GDP at 3.8% yoy.
Stagnant growth on qoq SA basis
Singapore’s advance GDP estimate expanded by 4.8% yoy in 2Q22 (vs. +4.0% in 1Q22), stronger than our forecast of 4.4% but weaker than consensus’s 5.4%. By breakdown, stronger growth was recorded in both goods and services producing industries, although the subcomponents of services namely wholesale, retail, transport & storage moderated at 2.8% yoy (1Q22: 3.4%), likewise with info & comms, finance and professional services (4.1% yoy; 1Q22: 5.7%). While 2Q22 GDP growth appeared robust on a yoy basis, the number is distorted due to the low base effect owing to the tighter Covid-19-related lockdown restrictions in 2Q21. On a seasonally adjusted (SA) basis, economic growth was stagnant at 0% qoq SA in 2Q22 (vs. +0.9% in 1Q22) with lower growth seen in most segments, in particular, the wholesale, retail, transport & storage contracted 0.9% qoq SA (1Q22: +1.4%).
2Q22 weakness due to global demand
According to MAS, growth on a qoq SA basis was weighed down by the trade-oriented sectors such as wholesale and manufacturing despite the stellar performance of the retail sector. Looking at available data, retail sales growth in Apr-May 22 was strong owing to the pent-up demand at 15.0% yoy or 1.4% mom SA driven by a broad list of components including recreational goods, food & beverage, minimarts, and apparel & footwear. On the other hand, non-oil domestic exports (NODX) have weakened with mom SA at -0.1% although yoy performance was still positive at 9.4% for Apr-May 22. That said, weakness in the NODX data seems to come mainly from the lower shipments to Hong Kong and China, likely stemming from the recent lockdown, as well as partly caused by a drop in shipments to the EU and the US.
MAS sees inflation as a bigger risk than growth slowdown
In a surprise move, the Monetary Authority of Singapore (MAS) tightened the monetary policy by raising the mid-point of the S$NEER policy band upwards to its prevailing level while keeping the slope and the width of the band unchanged. This is the second off-cycle move this year. Despite the risks of weaker external demand exerting downward pressure on domestic growth, MAS’s recent tightening move highlights that it sees inflation as a bigger threat to its domestic economy. It also raised its inflation forecast this year to 5.0- 6.0% from 4.5-5.5% earlier, with similar forecast adjustment to the core CPI to 3.0-4.0% from 2.5-3.5. Comparatively, our headline 2022 CPI forecast remains at 5.1% yoy.
Maintain 2022 GDP at 3.8% yoy
Overall, we suspect the recent 2Q22 GDP weakness in the advance estimate could be limited – as the weaker shipments from China amid the recent lockdown could improve as China embarked on its reopening in Jun 22. That said, the global outlook is still dim as the world is likely to pare down on demand as monetary policy is tightened and inflation soars. Even in China, the support from the reopening and pent-up demand is projected to be temporary as the risk of another lockdown is looming. In our view, Singapore growth will likely be driven by domestic factors, although the robust pent-up demand should continue albeit at a slower pace. We maintain our 2022F GDP growth at 3.8% yoy with 2023F at 2.0%.