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Economy slows in Q1, but economists stay upbeat

SINGAPORE — The Republic’s economy grew at a slower pace than expected in the first quarter this year, dragged by a slowdown in the service industries that partially offset the manufacturing sector’s robust expansion.

Singapore's Central Business District skyline. TODAY file photo

Singapore's Central Business District skyline. TODAY file photo

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SINGAPORE — The Republic’s economy grew at a slower pace than expected in the first quarter this year, dragged by a slowdown in the service industries that partially offset the manufacturing sector’s robust expansion.

However, economists are maintaining their positive outlook for the rest of the year, saying that improving external conditions will drive Singapore’s full-year growth.

In the January-to-March period, gross domestic product grew by 5.1 per cent from the corresponding three months last year, advance estimates by the Ministry of Trade and Industry (MTI) showed yesterday. This marked a slowdown from the 5.4 per cent on-year gain forecast by economists in a Bloomberg poll and the 5.5 per cent rise achieved in the previous quarter. From the previous quarter, GDP grew 0.1 per cent, down from the 0.4 per cent forecast in the poll and 6.1 per cent in the October-to-December quarter.

The main drag was from the service sector, where growth slowed to 4.7 per cent on-year from last quarter’s 5.9 per cent, while recording a 1.8 per cent quarterly decline — the first sequential contraction since the third quarter of 2012, OCBC economist Selena Ling said

“We saw wholesale and retail trade, as well as finance and insurance activities moderate in the first quarter, as China’s slowdown may have impacted regional trade,” she told TODAY. “In January, capital markets were also hit by a rout as fears over the United States Federal Reserve’s stimulus tapering triggered a sell-off.”

DBS economist Irvin Seah was not concerned with the latest soft patch, noting that the last sequential contraction came during the height of the eurozone debt crisis and that conditions now are far less severe.

“The associated risk level was not of similar magnitude compared with the previous episode. So, it’s hard to imagine the service sector, usually the most stable engine in the economy, dipping into contraction when the downside risk was not exactly that significant,” he said.

Meanwhile, the performance of the manufacturing sector was more positive, growing 8 per cent on-year in the first quarter after the 7 per cent on-year expansion in the previous three months. From the previous quarter, the sector grew by 4.5 per cent.

With the manufacturing sector maintaining its robust growth rate, the economic outlook this year remains positive, UOB economist Francis Tan said.

“Our externally-oriented sectors will be helped by the firmer recovery in developed economies. Already there are positive signs — the purchasing managers’ indices recorded by the US, United Kingdom and Japan were among the world’s highest in March,” he told TODAY.

“This will bode well for our electronics sector and any expansion from the typically volatile biomedical sector will be a nice bonus as well.”

Against this backdrop, Mr Tan said: “We maintain our 2014 GDP growth forecast of 4.3 per cent,” higher than the official estimate of 2 to 4 per cent.

Credit Suisse analyst Michael Wan also forecasts 4 per cent full-year growth, but cautioned that manpower constraints could pose headwinds to that outlook.

“Domestic sectors more dependent on manpower, particularly food and beverage services as well as the hospitality sector, may be impacted by a tight labour market, which is set for further tightening in July when more measures come into force,” he said. He was referring to previously announced changes, such as a reduction in the dependency ratio ceiling for work permit renewal applications and an increase in foreign worker levies.

“But the two regions that Singapore’s outlook is most dependent on — the US and Europe — are looking in better shape now and I believe Singapore will likely see a pickup in growth in the second half of this year,” he said.

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