Singapore economy grew 2.5% in second quarter, averts technical recession

SINGAPORE — Growth in manufacturing and services helped Singapore’s economy grow by 2.5 per cent in the second quarter from a year ago, the same pace of growth in the previous quarter, according to advance estimates released by the Ministry of Trade and Industry (MTI) on Friday (July 14).

On a seasonally adjusted annualised basis, the Singapore economy expanded by 0.4 per cent, in contrast to the 1.9 per cent contraction in the first quarter, narrowly escaping a technical recession as expected by some analysts.

Economists said the results were a “mixed bag”, pointing to the continued resilience in the manufacturing sector and a slowing in the underlying pace of growth.

The manufacturing sector expanded by 8.0 per cent on a year-on-year basis in the second quarter, extending the 8.5 per cent growth in the previous quarter. Growth was supported mainly by the electronics and precision engineering clusters, which saw robust expansions on the back of strong external demand for semiconductors and semiconductor manufacturing equipment respectively.

On a quarter-on-quarter seasonally-adjusted annualised basis, the manufacturing sector grew by 2.4 per cent, an improvement from the 0.4 per cent growth in the preceding quarter.

Mr Bernard Aw, economist, IHS Markit said the results were “hardly a surprise”, and expects the final estimate for second quarter gross domestic product to be revised lower to 2.3 per cent, as June data showed a further slowdown in growth.

The main drag was construction which has contracted for four straight quarters and fell 5.6 per cent year-on-year in the second quarter, following the 6.1 decline in the previous quarter, said Ms Selena Ling, head of treasury research and strategy, OCBC Bank.

“Both private and public sector construction activities were weak,” she noted. While the sector rebounded to grow by 4.3 per cent compared to the 14.4 per cent contraction in the preceding quarter, the latter was the sharpest fall since the first quarter of 2003, said Ms Ling.

Mr Joseph Incalcaterra, economist, HSBC Bank said the results were “disappointing”, given consensus expectations of 1.1 per cent quarter-on-quarter growth, versus the flash estimate of 0.4 per cent. Attributing the slack to weak services output, he said the slowdown reflected “tepid private consumption” and a deceleration in wage growth.

While Singapore’s economy is expected to remain strong this year, he said, “The data points to the continuation of a ‘two-speed economy’ where growth in external industries is showing scant evidence of filtering through to the domestic economy.” He expects the Monetary Authority of Singapore to maintain neutral monetary policy through the year.

Last month, private sector economists in a quarterly survey conducted by the Monetary Authority of Singapore raised Singapore’s full-year growth forecast to 2.5 per cent, up from the previous forecast of 2.3 per cent, on the back of a recovery in manufacturing.

The services producing industries grew by 1.7 per cent on a year-on-year basis in the second quarter, faster than the 1.4 per cent growth in the previous quarter. Growth was supported primarily by the transportation and storage and business services sectors. On a quarter-on-quarter seasonally-adjusted annualised basis, the services producing industries expanded by 0.4 per cent, a reversal from the 2.7 per cent contraction in the preceding quarter.

“Business confidence as to the year ahead improved further in June but a slowdown in both business activity and new sales – including stagnant growth in new export orders – pointed towards a further loss of growth momentum. The good news is that signs of better performance from the manufacturing sector were seen in June, in tandem with the sustained expansion in global electronics, which would continue to provide support for overall economic growth,” said Mr Aw.

MTI will release the preliminary GDP estimates for the second quarter, including performance by sectors, sources of growth, inflation, employment and productivity, in its Economic Survey of Singapore in August 2017.