Singapore’s GDP growth was far less than economists hoped in Q2, rising by just 1.7%. This followed another weak quarter in Q1 where the city state’s economy grew by 2.8%.

Critics suggest that Singapore’s manufacturing industry is to blame. The sector suffered a 4.0% decline in Q2 following a 2.7% decline from Q1. However, Singapore’s goods producing industry, in general, faces a decline too. Weak biomedical manufacturing and transport engineering clusters are the main cause.

Singapore’s contraction also results from a poor Q1 in the USA and Europe. As such, demand for certain export goods declined.

Firms are trying to counteract this decline. 70% of manufacturing firms plan to invest in new machinery and other technologies between April 2015 and March 2016. Ultimately, this will let companies stabilize the manufacturing sector by expanding production capacity and reaching export goals.

Given the continual decline in such clusters, this initiative should facilitate the revitalization of manufacturing in the Singaporean economy. More ‘dated’ initiatives also need to be reviewed.

 

Q3 Better for GDP Growth in Singapore

It’s not all bad news though. Some significant deals were struck in more recent weeks. These will appear in Q3 and could rebut the decline in certain sectors. For example, a $335m deal with Japanese pharmaceutical firm, Chugai, was announced in mid-June. A $920m deal for ST Aerospace Ltd is another case where the economy might rekindle its decline.

Nonetheless, although the economy has seen this significant downturn, other are still performing well. Most service-producing industries are growing at a healthy rate, well within the proposed 2-4% growth ideal. The finance and insurance sectors grew 7.9% in Q1 alone, for example. This promises further growth into Q2, with other sectors such as construction also seeing positive developments.

However, the overall balance of industries has meant that GDP growth in Singapore for Q2 2015 has slowed to 1.7%. This gives the Singaporean government a challenge to rectify this in Q3 and beyond.

Significant movements can already be seen though. The Singaporean economy should return to its former self, perhaps with helped by effort from the finance industry.

 

A Shift in Singapore’s Main Industries?

New York blogger Dominic Basulto acknowledges Singapore’s innovative abilities. He commends the country on how well they have and can adapt to changing global economic conditions, specifically within innovative industries. The Jurong Island project is a great example of this.

Singapore’s track record of innovation is staggering given their economic history in the past 50 years. The city-state transitioned through many stages of economic development in very little time. But does this mean they will respond effectively to the slowdown from the results of Q2? The answer is most likely yes, though Basulto also notes a slower Chinese economy could also affect Singapore’s outlook.

Thus, Singapore has proven, on many occasions, its ability to respond to dynamic economic conditions, especially in recent years. With the US regaining strength from Q1, and China also stabilising after a turbulent period, the MIT (Ministry of Trade and Industry) has reassured the Singapore economy is ‘unlikely to weaken further’. This means although the decline of certain sectors may be occurring now, it doesn’t mean other sectors won’t blossom in the near future.

In the meantime, it may be a better choice to stay away from stocks in Singapore and invest in emerging markets nearby instead. Diversification is important no matter where you live. Remember that just as investing in a single stock is risky, investing in a single country is also risky.

 

About Henry Skinner

Henry Skinner is an investor based in the United Kingdom. He is currently researching Asian markets and working on several international business developments.

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