Singapore's new normal appears to be converging closer to 2%, rather than 4%. The Ministry of Trade and Industry will likely cut and narrow its GDP growth forecast to 1.5-2.5% in August, down from the current 2-4% forecast range, when finalized 2Q GDP is released.



"We cut our GDP growth forecast to 2% (from 2.5%) for 2015 and 2.2% (from 2.8%) for 2016," says BofA Merrill Lynch.



The labor force is slowing significantly, with net employment contracting (-6,100) in 1Q for the first time since the global financial crisis. There is a high risk that weak employment will persist, given tight foreign worker policies. Labor productivity, which has been "negative" over the last four years (2011-14), is unlikely to improve significantly and offset weaker foreign labor growth.



Furthermore, the global outlook remains challenging and far less positive than the pictures MTI and the Monetary Authority of Singapore have painted. China's slowdown and weaker growth in the immediate neighbourhood - including Indonesia, Malaysia and Thailand - are dampening the outlook. Non-oil domestic exports grew a weaker 2.2% yoy in 2Q, versus 4.8% in the first quarter. Prospects of rising US and Singapore interest rates may tighten monetary conditions and hurt growth more. A stagnating economy may prompt the government to revisit macro prudential and property measures, but the pain threshold appears to be higher before any change in policy.