Economic growth loses traction in the first quarter

GDP growth decelerates: The statistical office slightly revised Q1 annual GDP growth upward to 3.9% from the 3.8% advance estimate (Q4 2024: +5.0% yoy). Despite the revision, the figure remains below the robust results seen in H2 2024. On a seasonally adjusted quarter-on-quarter basis, economic activity contracted 0.6% in Q1, contrasting the previous quarter's 0.5% increase and marking the largest contraction since Q2 2020—the height of the pandemic.

Public spending drives slowdown: Domestically, government consumption declined annually 8.3% in the first quarter, down sharply from a 16.2% surge in Q4 2024—the strongest increase since the pandemic—partly driven by a high base effect. That said, fixed investment growth hit an over two-year high of 6.3% in the first quarter (Q4: +4.9% yoy), likely buttressed by large construction projects. Moreover, household spending growth improved to 3.4% year on year in Q1 compared to a 2.2% expansion in Q4, bolstered by lower inflation. On the external front, exports of goods and services growth accelerated to 5.5% year on year in the first quarter, which marked the best reading since Q2 2024 (Q4 2024: +3.2% yoy), on the back of continued front-loading ahead of paused U.S. “reciprocal” tariffs. Similarly, imports growth picked up to 5.3% (Q4 2024: +3.8% yoy).

U.S. protectionism set to weigh on growth: U.S. import tariffs are expected to weigh on exports through 2025, leading our panelists to project a loss of momentum in GDP growth from current levels by year-end. As a result, our Consensus is for economic growth to cool from 2024’s three-year high in 2025 as a whole, undershooting the 10-year pre-Covid average. Private and public spending will decelerate, hampered by a high base of comparison and a gradual reduction in government cost-of-living support. Moreover, heightened global trade frictions should weigh on exports growth. That said, laxer monetary conditions and the implementation of the Johor-Singapore Special Economic Zone will add tailwinds.

Panelist insight: Commenting on the outlook, Jester Koh, analyst at United Overseas Bank, stated: “We raise our 2025 GDP growth forecast a tad […] as growth momentum in 2Q25 could continue to experience some bouts of resilience given the current pause on reciprocal tariffs and (temporary) truce on US-China trade tensions opens a window for continued front-loading by exporters as a hedging strategy given the risk could now be asymmetrically skewed to higher tariffs post the 90-day expiry as well as looming Section 232 sector-specific tariffs on pharma and semiconductors.” Similarly, Nomura’s Euben Paracuelles and Charnon Boonnuch stated: “We maintain our 2025 GDP growth forecast […] at the upper end of the official forecast range of 0.0-2.0%. We expect the government, after the elections, to unveil fiscal support measures worth 1.0% of GDP within Q2, focusing on limiting the impact of the tariff shocks on labour markets and therefore adding to resilience of domestic-oriented sectors. We still see the likelihood of a technical recession in Q2 as low. The strong increase in overall export growth in April, due to front-loading and re-routing effects, should provide a near-term boost to overall growth via trade-related services activity.”

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