Singapore's economic growth drifted down further in 2015, with real GDP expanding by 2.0% from 3.3% in 2014 (see Chart 1). The slower growth momentum was broad-based amid a synchronised downshift in the Chinese and regional economies. However, some production activities were more heavily affected due to higher direct exposure to sector-specific headwinds buffeting the global IT and oil & gas industries. At the same time, manpower-reliant sectors continued to face transitory supply-side constraints as they adjusted to ongoing efforts to boost productivity.

From the domestic sectoral perspective, the moderation stemmed largely from the manufacturing sector, which saw a full-year contraction. The slowdown was particularly pronounced in the electronics and marine & offshore engineering industries, reflecting the impact of a worldwide slowdown in electronics demand and a pullback in global oil exploration and production expenditures, respectively. Financial services also turned in a more modest performance, though still stronger than the rest of the economy, as loan growth to East Asia and the domestic trade-related industries eased. Industries dependent on domestic demand likewise slowed, in part due to continued weakness in private sector construction and softer demand for real estate business services.

Growth momentum in the Singapore economy eased at the start of this year, coming in at 0.2% on a q-o-q SAAR basis in Q1 2016, after an expansion of 6.2% in Q4 2015. The subdued outturn stemmed largely from a cyclical pullback in the financial services sector, following a surge in Q4 2015 when fees and commissions were paid out for the year. Softening regional trade flows also weighed on the trade-related services. In comparison, the manufacturing sector saw a rebound on the back of a boost to output in the pharmaceutical segment. Meanwhile, a pickup in non-residential building activities shored up growth in the domestic-oriented sectors.

Looking ahead, the Singapore economy is expected to continue on a modest and uneven growth path, with further uncertainty arising from recent developments in the UK and the Eurozone. Nonetheless, domestic-oriented sectors will remain generally resilient, buttressed by steady demand for services, such as healthcare and education. For 2016 as a whole, the Singapore economy is projected to expand by 1–3%.

Over the medium term, as productivity growth gains momentum, the economy is expected to settle on a sustainable growth trend underpinned by a skilled labour force, an enhanced capital stock, and technology-intensive production processes.