S’pore’s economy grew 2.9% in Q2, beats expectations

S’pore’s economy grew 2.9% in Q2, beats expectations
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Published: 8:00 AM, August 11, 2017
Updated: 5:44 PM, August 11, 2017

SINGAPORE — The Singapore economy expanded by 2.9 per cent from a year ago for the second quarter, beating expectations. Growth was helped by stronger-performing manufacturing and services sectors.

The improved scorecard has led the Ministry of Trade and Industry (MTI) to narrow gross domestic product (GDP) growth forecast for 2017 to the upper end of its earlier forecast at 2.0 to 3.0 per cent. The previous growth forecast was at 1.0 to 3.0 per cent.

The trade-led recovery is broadening out to the domestic economy, said economists, and they expect the growth to spread further towards private consumption going forward.

Singapore’s GDP for the second quarter grew faster than the 2.5 per cent growth in the first quarter. Advance estimates released by the MTI last month had expected a 2.5 per cent year-on-year growth for the April to June period. On a quarter-on-quarter seasonally adjusted annualised basis, the economy grew 2.2 per cent, reversing from a 2.1 per cent contraction in the first quarter.

The strong showing from manufacturing last month had already prompted several economists to expect an upgrade in the final second quarter GDP print to between 2.8 per cent and 3.0 per cent on a year-on-year basis. Manufacturing output had surprised economists with a 13.1 per cent growth for June.

“Manufacturing continued to drive growth as global demand for semiconductors and semiconductor-related equipment boosted the electronics and precision engineering clusters. Construction remains the weakest link, contracting in the second quarter, weighed down by lower public and private sector contracts,” said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye.

Meanwhile, services expanded for the same period, with strength visible across a broader range of services segments, posting the strongest services growth in almost two years, the economists said.

The trade-led recovery is broadening out to the domestic economy. “Some of the more ‘domestic’ sectors, such as other services, retail trade and property sector are seeing an uplift. Other services include education, health, social services and the arts, entertainment and recreation segments,” Mr Chua and Ms Lee said.

Credit Suisse economist Michael Wan added: “Moving forward, we expect the mix of growth to shift towards domestic-oriented sectors, in particular private consumption, and away from exports. We continue to hold a positive view on private consumption, and expect the lagged impact of strong exports, a robust property market, and fading negative impact of big-ticket motor vehicle sales to spill over into underlying retail sales over the rest of this year.”

Economists suggest the Monetary Authority of Singapore (MAS) is unlikely to adjust its monetary policy settings of a neutral appreciation stance in the upcoming meeting in October. At the media briefing on Friday (Aug 11), MAS deputy managing director Jacqueline Loh said the narrowing of the GDP forecast range for the year toward the upper end is “within the planning parameters of the MAS’ April 2017 monetary policy decision (and) accordingly, the monetary policy stance remains as announced in April”.

In its statement on Friday, the MTI said the outlook for the global economy has remained stable in recent months, with global growth on track to come in higher this year as compared with last year. Barring unexpected outcomes in the global economy and key sectors in the domestic economy for the rest of the year, MTI expects GDP growth for the full year to come in at around 2.5 per cent, the same growth figure mentioned by Prime Minister Lee Hsien Loong in his annual National Day speech on Wednesday (Aug 9).

Even as global economic recovery is expected to continue on a “firm footing” for the rest of the year, downside risks such as anti-globalisation sentiments, global political risks and policy uncertainty remain, the MTI cautioned. The advanced stage of the United States’ economic expansion could also see monetary policy normalise faster than expected, thus causing global financial conditions to tighten more than anticipated, it noted.

The MTI noted that the US economy rebounded to grow at a faster pace in the second quarter of the year as compared with the first quarter. The growth momentum is expected to be sustained in the second half of the year, supported primarily by domestic demand. Meanwhile, the Eurozone economy is expected to remain stable, and to continue to grow at a modest pace for the rest of the year.

China’s growth is projected to ease slightly in the second half of this year, following stronger-than-expected growth in the first half of the year. However, exports are expected to remain robust, with the recent pickup in external demand likely to be sustained into the year, thereby supporting GDP growth.

Against this external backdrop, the MTI said the manufacturing sector is likely to continue to provide support to the Singapore economy in the second half of the year. Likewise, externally oriented services sectors such as the transportation and storage, wholesale trade and finance and insurance sectors are expected to benefit from the pickup in global trade.

The manufacturing sector expanded 8.1 per cent year-on-year in the second quarter, following the 8.5 per cent growth in the previous quarter. Growth was primarily supported by the electronics and precision engineering clusters, which expanded on the back of strong global demand for semiconductors and semiconductor-related equipment.

The services sector grew 2.4 per cent for the second quarter, up from the 1.4 per cent growth in the first quarter. Six out of the seven segments wholesale and retail trade, transportation and storage, information and communications, finance and insurance, business services and other services industries posted growth. Only the accommodation and food services segment contracted from a year ago. The construction sector contracted by 5.7 per cent year-on-year, extending the 6.3 per cent decline in the previous quarter.