Blog

[SINGAPORE] Both official and private-sector forecasts for Singapore’s full-year growth may be cut after US President Donald Trump slapped a blanket 10 per cent import duty on all countries and more extensive reciprocal tariffs on the “worst offenders”.

The official gross domestic product growth forecast may be downgraded from the current range of between 1 and 3 per cent, as the situation has “turned out to be worse” than expected when the projection was made, Minister for Trade and Industry Gan Kim Yong told reporters on Thursday (Apr 3).

He warned of a “significant impact” from the 10 per cent tariff alone, adding that the government will give more help to households and businesses if needed.

But the greater fear is of retaliatory tariffs from other countries, which may escalate into a trade war, he added.

Still, the revised forecast may not arrive with advance first-quarter GDP estimates – due no later than Apr 14 – as this depends on when the government completes its assessment. “It’s important for us to do so very carefully, rather than to jump to conclusions, and then you may mislead the market and businesses.” said Gan, who is also deputy prime minister.

He noted that under its free trade agreement (FTA) with the US, Singapore has recourse to take countermeasures and seek dispute resolution – but has decided not to do so. “Imposing retaliatory import duties will just add costs to our imports from the US and this will affect our consumers and businesses,” he explained. Instead, Singapore is engaging US counterparts to understand and address their concerns, he added.

Meanwhile, global and regional stocks tumbled as Trump’s “Liberation Day” tariffs spooked investors. But the Straits Times Index emerged almost unscathed, slipping just 0.3 per cent, or under 12 points, to 3,942.23.

Earlier on Thursday, the Monetary Authority of Singapore said that it “stands ready to curb excessive volatility in the Singapore dollar” to ensure that the Republic’s foreign exchange and money markets remain “orderly”.

More private sector trepidation

Private-sector economists are also mulling downgrades, despite noting that it is too early to tell how exactly Trump’s tariffs will shake out for Singapore.

OCBC has already trimmed its full-year growth outlook by 0.1 percentage point, to 2.1 per cent, while Maybank is reviewing its numbers and may cut its 2.6 per cent projection.

UOB also sees “potential for a growth downgrade” and will review its forecast when the Q1 GDP data is released, said head of research Suan Teck Kin.

DBS, meanwhile, sees a 0.4 per cent downside risk to its 2.8 per cent growth forecast.

As for inflation, UOB is looking out for deflationary risks driven by “dumping” of excess export supply by countries no longer planning to ship to the US.

Pushan Dutt, professor of economics and political science at Insead, said that the combination of inflation and stagnation is a critical risk for Singapore. “If world trade shrinks, and uncertainty continues to be elevated, it will reduce growth. And if supply chain disruptions continue that will raise costs and prices,” he noted.

Singapore’s non-oil domestic exports could face pressure, said OCBC chief economist Selena Ling, but the question is who bears the cost of the tariffs.

“If exporting countries absorb the tariffs for exports going to the US market or if their currency adjusts, then US consumers may not face higher prices,” she said. In that case, US consumer demand may not weaken.

“In the short term there may be heightened uncertainties,” she added. “In the medium term, there could be some diversification and reduced reliance on the US as a market if the tariffs cannot be negotiated away.”

Not that bad?

Granted, the 10 per cent tariff faced by Singapore is relatively low, said economists.

This is the lowest in the Asean-6, noted DBS senior economist Chua Han Teng. Singapore’s goods exports exposure to the US is also lower than those of Asean peers, at 8.5 per cent in 2024.

Maybank economist Chua Hak Bin noted that the Republic’s FTA, bilateral trade deficit and low tariffs on US goods helped to protect it against “punishing” reciprocal tariffs imposed on many other Asian countries”.

OCBC’s Ling added that the lack of sectoral tariffs on semiconductors or pharmaceuticals – for now – means “it’s not the worst outcome, per se.” She added that more manufacturing activities may come to Singapore, where tariffs are “relatively mild” compared to those on China or others in the region. Singapore could benefit from this diversification and a potential “flight to quality”, she added.

That said, not every activity can be relocated here at short notice, especially since Singapore is a high-cost manufacturing centre, she pointed out. Business and consumer confidence will also be dampened in the short term.

Wider ramifications

But beyond the direct tariff, trade-reliant Singapore could suffer further, especially if US trading partners retaliate.

Trump’s “very high” tariffs levied on Singapore’s major trading partners, such as China, India and Asean, will already be “disruptive”, said Insead’s Prof Dutt. An “all-out trade war” that shrinks world trade would hurt Singapore further, he added. He suggested that Singapore could pivot towards service exports, which are not on Trump’s radar.

DBS’ Chua flagged that Singapore’s manufacturing Purchasing Managers’ Index already cooled in March, signalling rising downside risks.

Maybank’s Dr Chua expects Singapore’s manufacturing and exports to contract in coming quarters, while OCBC’s Ling agreed that the “punitive tariffs” on China, Malaysia and Indonesia could depress near-term trade and Singapore’s export growth. Ling added: “Singapore may also suffer as a lot of the supply chains, trade and funding activities also come through here because of our hub status.”

Businesses on edge

Singapore Manufacturing Federation chief executive officer Dennis Mark said that the tariffs could add cost pressures that “significantly affect” industries that are heavily reliant on trade or are integrated into global supply chains. This may influence pricing strategies and market access, he added, while increased export costs may erode competitiveness in key markets.

In particular, small and medium-sized enterprises (SMEs) could face “considerable challenges” due to their limited capacity to absorb the financial burden, he noted.

Ang Yuit, president of the Association of SMEs, said that businesses that export to the US are broadly concerned about whether consumer demand will be sustained.

SMEs that manufacture in China or obtain their goods from there “are even more concerned because China doesn’t seem to be in a mood to negotiate with the United States”, he added.

Not yet rock bottom

It is possible that the worst is yet to come. Trump has yet to follow through on previously threatened sector-specific tariffs, such as in semiconductors and pharmaceuticals. If he goes ahead, “the collateral damage will worsen”, said Dr Chua.

UOB’s Suan said that pharmaceutical tariffs would have a particularly pronounced drag on Singapore’s growth.

OCBC’s Ling added that Trump’s earlier threats were for “10 to 20 per cent” universal tariffs, meaning there could be “further punches left” if Trump is dissatisfied with negotiations.