The Ministry of Trade and Industry of Singapore downgraded its forecast of the nation's growth from an earlier 1.5 to 3.5 percent to 1.5 to 2.5 percent because of the uncertainty from the United States-China trade war. Singaporean dollar is expected to weaken as the trade war escalates.
Economists downgraded the growth because of "challenging" external environment. They also predicted a sharp slowdown in the manufacturing sector.
The sector, which makes up one-fifth of Singapore's economy, has declined by 0.5 percent dragged the nation's growth. Manufacturing contracted for the first time in three years as electronics and precision engineering segments slumped.
Singapore saw growth in its construction industry after recovering from a three-year decline. Construction gained 2.9 percent because of improvements in both public and private sector construction activities.
The services industry is at its steady growth of 1.5 percent because of the contributions from the information and communications, finance & insurance, and business services. Gabriel Lim, MTI permanent secretary, said that government officials are worried about the effect of the trade war on business investments and consumer confidence. He also said that the revised growth forecast takes into account the broader picture, and "goes beyond any single company or issue".
The Singaporean dollar is expected to weaken further because of the growing tension between the United States and China. Singapore is an export-dependent city-state which means that poor export causes a drag on its currency.
The poor export data on Friday caused a decline in the Singaporean dollar's nominal effective exchange rate. The Singaporean dollar declined by 1 percent this month because of the escalating trade tension. Economists and investors are speculating on the revised gross domestic product figures of the country to predict the trajectory of the Singaporean dollar.
Frances Cheung, head of Asia macro strategy at Westpac Banking Corp, said that given the small size of the Singapore economy and the subdued outlook in the electronics sector, the risk is for more weak economic data to come. Cheung added that potentially weak data may push MAS expectations toward a more dovish side. On Friday, the Singaporean dollar declined by 0.2 percent against to trade at S$1.3749 per U.S. dollar as of 3:58 p.m. local time.
According to the International Monetary Fund, risks to the economy tend to the downside. The agency advised the Monetary Agency of Singapore to be data dependent on its response.
