SINGAPORE: Manufacturing will likely be the biggest drag on the Singapore economy in 2023, as the sector's slowdown continues amid weaker global demand, according to economists.
They said that the services sector, riding on the tailwinds of reopening economies around the world, could offer some support for growth and jobs.
The Ministry of Trade and Industry MTI released its estimates on Tuesday January 3 and showed that the Singapore economy grew 3.8 per cent in 2022, a drop from 7.6 per cent growth in the year before.
In the fourth quarter, the gross domestic product GDP came in at 2.2 per cent on a year-on-year basis, almost half of the 4.2 per cent growth in the previous quarter, as the key manufacturing sector contracted.
Manufacturing, which accounts for about one-fifth of the local economy, shrank by 3 per cent year-on-year in the three months through December. This was the first contraction of the sector since 2020.
Manufacturing momentum has faltered in recent months, especially due to growing global growth concerns and the loss of steam in the global electronics industry, said Selena Ling, chief economist at the OCBC Bank.
These headwinds will likely persist in the year ahead, along with ongoing trade tensions between the United States and China.
In October the Biden administration announced new export controls to cut off China's access to high-end chips and chip-making equipment made with US technology, a move that Singapore has said could affect its semiconductor industry, given how supply chains are highly complex and globalised.
The implications for regional manufacturing supply-chains are complicated, as a result of US-China rivalry on advanced manufacturing, according to Ms Ling, according to Barclays senior regional economist Brian Tan, who said that some clusters within manufacturing could benefit from industry-specific tailwinds. Aerospace, which falls under transport engineering manufacturing, should see some upside from the recovery of air travel.
The outlook for the sector remains soft in the first half of 2023, he said.
He said that it will probably be the biggest drag on the economy. There will also be an impact on other trade related services like wholesale trade that are tied to external demand.