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Singapore cuts 2016 GDP forecast after disappointing Q2 growth

Suhaimi Abdullah - Getty Images

Singapore downgraded its economic growth forecast as the economy expanded slower than initially estimated amid uncertainties about Brexit and weakening global demand, leaving the door open for additional policy stimulus.

The trade-dependent economy is expected to expand 1-2 percent this year, the Ministry of Trade and Industry said on Thursday. That compared with a previous forecast of 1-3 percent growth.

The economy expanded 0.3 percent in the April-June period from the previous three months on an annualized and seasonally adjusted basis, according to the ministry data.

That compared with the government's advance estimate of 0.8 percent. Economists polled by Reuters expected there would be no change to the advanced estimate.

"Global demand continues to be weak and for a country like Singapore that is open, it shows very, very quickly and rapidly," said Vishnu Varathan, an economist at Mizuho Bank.

"They certainly have room to tweak the policy but the question is one of prudence - would they indeed be prudent to do so? After Brexit we think there is a small possibility."

The economy grew 2.1 percent in the second quarter from a year earlier, missing the government's initial estimate.

The Monetary Authority of Singapore in April unexpectedly eased policy by setting the rate of appreciation of the Singapore dollar's policy band at zero percent.

MAS Managing Director Ravi Menon said last month that the central bank's current monetary policy stance remains appropriate and only a marked worsening in the global economy or significant shift to the inflation outlook would prompt a change. Still, the MAS said it also was closely watching risks related to Brexit, the U.S. economic recovery and the slowdown in China.

Central banks in Asia and other regions have cut interest rates and pumped in fresh money to protect their economies from the fallout from Brexit.

Visible signs of faltering have emerged in Singapore's economy with entire floors at some central shopping malls empty as domestic demand slumps. Meanwhile, the financial services industry has come under intense pressure from tougher compliance rules amid a money laundering scandal.

The second quarter growth was hurt as the services sector contracted for a second straight quarter.

The sector shrank 0.6 percent in April-June period from the previous quarter, reversing the initial estimate of 0.5 percent growth, the final data showed.

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