S’pore Q2 GDP takes hit after manufacturing slump

SINGAPORE — Economic activity in the second quarter grew at its slowest pace in more than a year, dragged down in particular by a manufacturing slump as Singapore reshapes its economy, prompting several economists to revise downwards their forecasts for the rest of the year.

Gross domestic product (GDP) expanded 2.1 per cent between April and June from a year earlier, considerably slower than the revised 4.7 per cent pace in the previous three months, advance estimates by the Ministry of Trade and Industry (MTI) showed yesterday.

That was also Singapore’s weakest growth since the first quarter of last year, when GDP rose 1.5 per cent.

The manufacturing sector, the key driver of growth in the previous quarter, has now become “the weakest link”, DBS noted, as the process of economic restructuring and softness in some markets result in factories here operating at a much less vigorous pace.

Manufacturing growth slipped to a mere 0.2 per cent on-year increase in the second quarter, well shy of the 9.9 per cent expansion in the previous three months.

“To begin with, the strong showing by the manufacturing sector in the first quarter never appeared to be sustainable, in our opinion,” said DBS senior economist Irvin Seah.

“The surge in pharmaceutical output and a sharp spike in offshore marine engineering production were never meant to persist. As these impetuses dissipated, manufacturing growth naturally ebbed. Moreover, a cyclical slowdown and the decline in external competitiveness compounded the woes faced by manufacturers.”

On a quarter-on-quarter, annualised and seasonally-adjusted basis, the slowdown in manufacturing — which accounts for about one-fifth of Singapore’s GDP — was much more pronounced, shrinking 19.4 per cent in the second quarter, after growing 12.2 per cent in the first.

That led to an unexpected 0.8 per cent contraction in overall GDP in the second quarter, prompting several economists to revise downwards their full-year forecasts, although their estimates are still at the upper end of the official prediction of 2 to 4 per cent growth.

The last time Singapore’s GDP contracted in the seasonally adjusted annualised quarter-on-quarter advance estimates was in the third quarter of 2012, when GDP shrank 3.6 per cent, reported Reuters.

Among those lowering their full-year GDP forecasts is UOB economist Francis Tan, who has downgraded growth to 3.5 per cent from his previous 4.2 per cent estimate, citing continued weakness in the manufacturing sector.

“The ‘firm-specific factor’ in the semiconductor cluster would reduce growth rate in the electronics manufacturing sector for the rest of the year,” he said. “Although the economic recovery in the G3 nations (United States, European Union and Japan) had been supportive, recent months of growth stagnation in emerging markets … would counteract the improving demand from the developed markets.”

The Economic Development Board has previously said that a “firm-specific factor” was partly responsible for a sharp fall in electronics production in April, which many economists interpreted as a possible relocation of a major firm.

Mr Tan said: “Looking forward, these factors will be more eminent in the third and fourth quarter because of the high base last year; manufacturing picked up in the second quarter and growth was fast in the third and fourth quarters.”

Besides manufacturing, a downtrend in the services sector also “warrants close attention”, said DBS’ Mr Seah.

Growth in services slowed to 2.8 per cent on-year in the second quarter following a 3.9 per cent rise in the first three months, said the MTI.

“The existing labour crunch due to curbs in foreign manpower has been taking a toll on the sector. There is a risk that this sector may continue to decelerate in the coming quarter, which will post a threat to the medium-term prospects of the economy,” said Mr Seah. “If the growth momentum in this sector continues to moderate, our full-year GDP growth forecast (of 4 per cent) will have to be lowered,” he added.

Despite the lacklustre performance in manufacturing and services, the overall economy still put up a “decent” showing in the first half of this year by growing 3.4 per cent year-on-year, noted OCBC head of treasury research and strategy Selena Ling.

“On balance, it is still an improvement compared with 2.75 per cent for the same period last year. However, the overall choppy growth trajectory in the first half, especially for manufacturing and services, is reflective of the headwinds from the less-than-stellar global demand recovery and the domestic labour crunch,” she said.

Ms Ling is cutting her full-year GDP forecast from 3.5 per cent to 3.3 per cent.