SINGAPORE - Singapore's economy grew by 2.2 per cent year on year in the third quarter, slowing from the 4.1 per cent growth in the previous quarter and performing below the Government's initial estimate and market expectations.

The economy is expected to grow by 3.0 to 3.5 per cent in 2018, at the upper end of an earlier forecast range of 2.5-3.5 per cent, said the Ministry of Trade and Industry in its third quarter Economic Survey of Singapore on Thursday (Nov 22).

Releasing its official 2019 forecast for the first time, MTI said Singapore’s economy is expected to slow to between 1.5 and 3.5 per cent, partly due to the impact of the ongoing US-China trade conflict.

The Q3 final figure falls short of the 2.4 per cent growth consensus forecast of analysts polled by Bloomberg, and MTI’s 2.6 per cent advance estimate, as manufacturing and services growth was downgraded.

On a quarter-on-quarter basis, the economy grew by 3 per cent, faster than the 1 per cent growth in the second quarter.

MTI permanent secretary Loh Khum Yean said the external demand outlook is “slightly weaker” in 2019 compared to this year, while global economy risks are tilted to the downside.

Speaking to the media at a press conference in the Treasury, Mr Loh highlighted the loss of global business and consumer confidence due to any escalation of the trade war as the most serious risk factor.

“Should this happen, global investment and consumption spending would decline, with adverse impact on economic growth,” he said.

He added that there could be further pullback in investment and consumption growth, which could spill over to the rest of the region, if there is a faster-than-expected tightening of global financial conditions.

However, the trade war has not had any discernible impact on Singapore’s economy yet, as most of the tariffs are set to kick in from the latter half of the year, he said.

For the third quarter, growth was primarily supported by the finance and insurance, manufacturing and business services industries. Most industries saw slower expansion or contraction, the figures showed.

The manufacturing sector grew by 3.5 per cent year-on-year in Q3, down from the 10.7 per cent expansion in the previous quarter. While most segments of manufacturing grew, the exception was the general manufacturing cluster, which shrank due to declines in the printing and miscellaneous industries segments, said MTI.

Construction contracted by 2.3 per cent, faring better than the 4.2 per cent year-on-year decline in Q2. This was due to weakness in public sector construction activities. However, the sector is expected to improve next year as the larger number of contracts awarded in the second half of 2017 start to bear fruit, said MTI economics director Yong Yik Wei.

Wholesale and retail trade grew by 0.5 per cent year on year, moderating from its 1.5 per cent growth in Q2. The wholesale trade segment contributed most to the sector’s growth, while retail trade shrank due to weak motor vehicle sales.

The finance and insurance industry expanded by 5.6 per cent, down from the 6.8 per cent year-on-year growth previously. The infocomm sector also eased to 4.7 per cent from 5.8 per cent in the previous quarter.

The only year-on-year improvement seen in the third quarter was in transportation and storage, which grew 2.1 per cent from 1.2 per cent previously; accommodation and food services, growing slightly faster at 4 per cent, from 3.9 per cent in Q2; and business services, which also saw a marginal improvement at 2.4 per cent this quarter, up from 2.3 per cent previously.

Other miscellaneous services industries, supported by education, health and social services, also posted a 1.2 per cent growth year on year, faster than the 0.5 per cent rise in Q2.

For 2019, Mr Loh said MTI expects services to take over manufacturing as the main growth driver, in terms of the composition of Singapore’s overall gross domestic product (GDP), as manufacturing slows down from its surge over the past two years.

“We expect that balance to shift somewhat going into 2019, where manufacturing will see more moderate growth. For services, while it will also be impacted by the moderation in growth in advanced and regional economies, but domestic services will provide some resilience, so the composition of growth will shift somewhat,” said Mr Loh.

DBS Bank senior economist Irvin Seah said the quarter-on-quarter GDP figures show a degree of resilience in the economy.

“That said, there are concerns regarding the risk aversion and faster than expected hikes in interest rates causing excessive volatilities in the financial markets, and property cooling measures weighing down on the business service and construction sectors in the coming quarters," he said.

“A trade war could also add salt to wound in the near term.”