INDUSTRY trends from advance gross domestic product (GDP) estimates appear to indicate that Singapore’s economic growth is becoming more broad-based.

Singapore’s economy began 2024 on firmer note with GDP growing 2.7 per cent year on year (yoy) in the first quarter. This came after a 1.1 per cent growth for the full year in 2023, and 3.8 per cent growth in 2022.

All five of the industry sector aggregates expanded yoy. This was led by the construction sector, which registered 4.3 per cent growth in Q1, while the information and communications, finance and insurance, and professional services sector grew 4.2 per cent.

Compared with the preceding quarter, three of the five industry sectors logged quarter-on-quarter declines, while the remaining two industry sectors had a turnaround from contractions in Q4 2023.

Global macroeconomic drivers

For 2024, expectations are that Singapore will grow on the upper end of the 1 to 3 per cent range. This is, however, contingent on three key overarching global macro drivers.

These include an outlook for less tight financial conditions in the second half of 2024, the continued recovery of manufacturing and electronics, and the intensity levels of ongoing geopolitical tensions.

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Going into Q1 2024, expectations were about 80 per cent that the Federal Funds Rate would be lower than they were by as early as the Federal Open Market Committee (FOMC) meeting on Mar 20.

Similarly, going into Q2, expectations were about 70 per cent that the Fed Funds Rate would be set lower at the Jun 12 FOMC. In the space of two weeks, however, those expectations have been reduced to 20 per cent.

The change in expectations was initiated by US Federal Reserve chairman Jerome Powell’s remarks on Apr 3 that the FOMC has time to let the incoming data guide its decisions on policy.

The benefit for the FOMC in waiting six weeks between the meeting on Jun 12 and Jul 31 is that there will be two months of core Personal Consumption Expenditures (PCE) deflator reports, which measures US consumer spending.

For the first two months of 2024, the core PCE deflator has so far consolidated at 2.8 per cent. Nonetheless, as at the close of the Asia market on Apr 12, the market is split 50:50 on the Fed Funds Rate being lower at the conclusion of the Jul 31 FOMC, with 90 per cent expectations that there will be at least one rate cut by the end of H2 2024.

Singapore performance

The trio of Singapore banks on the Straits Times Index have averaged 6.5 per cent total returns year-to-date, while the iEdge S-Reit Index has generated a decline in total return of 7.6 per cent.

This divergence has coincided with the increased expectations of higher for longer global interest rates since the end of 2023. The higher interest rates support bank net interest margins, which in turn support net interest income. For the Singapore real estate investment trusts, the higher interest rates drive an increase in financing costs – which in turn reduce the amount of distributable income for unitholders.

As expected on Apr 12, the Monetary Authority of Singapore (MAS) in its April Monetary Policy Statement (MPS) delivered no change to the rate of appreciation of the Singapore Dollar Nominal Effective Exchange Rate policy band.

MAS projects core inflation to average between 2.5 and 3.5 per cent in 2024, which is 1.5 to 2.5 per cent excluding the impact of the increase in the GST rate.

In the MAS Survey of Professional Forecasters in March, 14 per cent of respondents anticipated a reduction in the slope to the rate of appreciation of the policy band to come in the MPS in July, while 30 per cent expected the reduction to be announced at the October MPS.

The majority of expectations were for the rate of appreciation to remain unchanged.

MAS in the policy statement this month noted that upside inflation risks included price shocks in global food and energy prices, or stronger-than-expected demand for labour within Singapore.

Inflation risk

At the same time, an unexpected weakening in the global economy inducing a faster easing of cost and price pressures was seen as the key downside inflation risk.

Just as the outlook for less tight financial conditions is brighter in H2 than H1, there were greater expectations that the recovery in electronics, broader manufacturing and trade-related sectors will be gradual and thus more evident in H2.

Export growth for Singapore, Taiwan and South Korea was strong in January and muted in February; and likely mixed for all three once non-oil domestic exports data for March to be released on Wednesday (Apr 17). The iEdge SG Advanced Manufacturing Index has had four gainers for every five decliners in the year to date.

The risk of escalating geopolitical tensions in the Middle East has caused the price of gold to continue its upward March momentum over the first two weeks of April.

On Apr 12, the SPDR GoldShares Exchange Traded Fund (ETF) traded above S$300 a unit for the first time. This ETF is traded in both USD (ticker: O87) and SGD (ticker: GSD) counters.

One unit in this ETF provides equivalent exposure to the price performance of about 0.094 ounce of gold; to build exposure of one ounce, investors would have to purchase 11 units.

Over the past two weeks, the average daily trading turnover of the ETF reached its highest levels in close to four years.