World Economy

Singapore Warns Trade Tensions May Lower H2 Growth

Singapore Warns Trade Tensions May Lower H2 GrowthSingapore Warns Trade Tensions May Lower H2 Growth

Singapore authorities warned of slower economic growth in the second half, citing uncertainties triggered by the US decision to impose tariffs that sparked retaliatory action by China and the European Union.

Despite the city-state averaging growth of more than 4% in the first half, the ministry of trade and industry said it was retaining its forecast for the domestic economy to expand between 2.5% and 3.5% for the whole of this year, Nikkei reported.

“There is a risk of a further escalation of the ongoing trade conflicts that could lead to a vicious cycle of tit-for-tat measures between the US and other major economies,” MTI said as it released detailed gross domestic product data for the second quarter ended June.

“Should this happen, there could be a sharp fall in global business and consumer confidence, and in turn, investment and consumption spending,” it added.

The ministry highlighted the risk of disorderly capital outflows as US interest rates increase, creating difficulties for emerging Asian economies with elevated debt levels.

Singapore, with a population of just 5.6 million, is one the world’s most open economies with total trade amounting to more than three times GDP. The island’s key industries include electronics, which is closely tied to global supply chains, and financial services, which is dependent on regional growth.

According to MTI, Singapore’s GDP increased by 3.9% in the second quarter from a year ago, led by continued double-digit expansion in manufacturing and a healthy 6.7% rise in financial services.

The second quarter expansion was slightly higher than the government’s advance estimate of 3.8% but was slower than the previous quarter’s 4.5%. Economists had expected second quarter GDP growth to be revised upward to around 4.1%, according to a Reuters poll.

On a quarter-on-quarter seasonally adjusted annualized basis, Singapore’s economy grew 0.6%, coming in below the advance estimate of 1.0% due to an upward revision in first quarter growth.

Irvin Seah, a senior economist at DBS Bank, said the weaker performance in the April-June quarter was part of a “normalization process” amid the peaking of the electronics cycle and tighter liquidity as global interest rates increase.

“That said, the clouds on the horizon are gathering,” Seah said. Trade action between the US and China, Singapore’s two largest export markets, could indirectly affect the city-state while tighter liquidity conditions and mounting pressure on regional currencies could also damp investor confidence and business sentiment, he added.

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