Service sector to become stronger economic growth engine: MAS survey

Economists expect finance and insurance sector to expand 7 per cent

The service sector is set to become a stronger economic growth engine this year, according to a new survey of private sector economists.

The finance and insurance sector is tipped to expand 7 per cent, said economists surveyed by the Monetary Authority of Singapore (MAS), up from 4.4 per cent in a previous poll.

Meanwhile, growth in the accommodation and food service sector is now expected to come in at 2.2 per cent, up from 1.9 per cent previously.

Manufacturing is expected to expand a robust 5.3 per cent this year, also higher than previous estimates of 4.3 per cent.

This stronger forecast comes despite warnings from some economists that the sector, which makes up a fifth of the economy, could moderate this year after growing at breakneck speed last year.

"The service uplift is coming in stronger than expected, with financial services leading the charge," said Maybank Kim Eng economist Chua Hak Bin.

However, the outlook for the construction sector has taken a turn for the worse, going by the latest survey, with respondents tipping a contraction of 2.1 per cent. The previous survey released in March flagged 1 per cent growth in the sector.

The outlook for private consumption growth has also eased. Economists in the latest poll expect a rise of 2.2 per cent, compared with 3.1 per cent in the previous quarter's survey.

Respondents flagged trade protectionism as the biggest threat to Singapore's economy, with 84 per cent citing it as a significant risk. This was down from 88 per cent in March's survey but much higher than the 40 per cent in December's poll.

Concerns about a slowdown in China appear to have eased, with 21 per cent of respondents flagging it as a key risk, down from 53 per cent previously.

Another risk could be faster-than-expected interest rate increases. Private sector economists pointed to the impact of rising rates - in particular, tightening financial conditions if the US Federal Reserve raises rates more quickly than expected.

This risk was cited by 47 per cent of respondents, up from 17 per cent in March.

The US central bank raised rates in March and is expected to do so again.

The rate hikes highlight the Fed's growing confidence that tax cuts and government spending will boost the US economy and lift inflation. Rates were raised three times last year.

CIMB Private Bank economist Song Seng Wun said market watchers are getting nervous as the pace of rate increases picks up. They fear higher US interest rates will result in capital flows out of emerging markets while raising borrowing costs and debt refinancing risks.

The latest MAS survey reflects the views of 24 analysts who monitor the Singapore economy. It was sent out on May 24.