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Singapore economy stagnates in Q1 as services sector shrinks

SINGAPORE — The Singapore economy grew by 1.8 per cent year-on-year in the first quarter of 2016, according to advance estimates released on Thursday (April 14) by the Ministry of Trade and Industry (MTI).

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SINGAPORE — Growth in the Singapore economy ground to a halt in the first quarter despite an unexpected surge in manufacturing as the services sector contracted for the first time in a year, prompting economists to warn of a worsening outlook and a leading bank to downgrade the Republic’s forecast for 2016.

Gross domestic product (GDP) was flat on a quarter-on-quarter seasonally-adjusted annualised basis, slowing sharply from the 6.2 per cent expansion in the preceding quarter, advance estimates from the Ministry of Trade and Industry (MTI) showed on Thursday (April 14). On a year-on-year basis, growth was unchanged at 1.8 per cent in the first quarter.

OCBC Bank has downgraded its full-year growth forecast to 1.8 per cent from 2 per cent previously as “the Singapore economy ran out of steam in the first quarter of this year, chalking up no sequential growth from the fourth quarter and the weakest quarter-on-quarter growth since the second quarter of 2015”, said Ms Selena Ling, the bank’s head of Treasury Research and Strategy. 

“Since we expect the second quarter of this year to be weaker, this is likely to tip the scales towards a technical recession materialising by the second quarter or even the third quarter,” she added. “The cyclical headwinds to the external-oriented sectors remain strong, notably in the transport engineering, precision engineering, IT and supporting electronics industries, whereas the domestic-oriented sectors like healthcare and education should remain supportive. Nevertheless, the retail and real estate segments are also likely to soften as economic sentiments weaken.” 

UOB and DBS banks have kept their full-year forecasts for the Republic at 2.7 per cent and 1.5 per cent, respectively. The Monetary Authority of Singapore, which on Thursday eased policy for the third time since January 2015 by setting a neutral stance for the local currency, maintained its full-year growth forecast at 1 to 3 per cent.

The services industry contracted by 3.8 per cent in the first quarter from the previous three months, reversing from the 7.7 per cent expansion in the preceding quarter. On a year-on-year basis, services expanded by 1.9 per cent, moderating from the 2.8 per cent growth in the previous quarter. 

“The growth support from wholesale and retail trade, and the finance and insurance sectors was not immune in the first quarter. Financial-services activity actually saw a pullback amid the slowdown in bank lending to the region,” Ms Ling said.

Dr Tan Khay Boon, senior lecturer at SIM Global Education, said: “The major surprise and concern is actually the services sector. For the past few years, the sector has been the major engine of growth, supported by a vibrant domestic sector to counter the weak external sector. If the decline in the services sector persists, it may drag down the growth of Singapore’s GDP.”

Manufacturing, which contributes to about one-fifth of the economy, jumped 18.2 per cent from the previous quarter as pharmaceutical production soared, helping the sector rebound from a 4.9 per cent contraction previously. However, pharmaceutical output is notoriously lumpy and economists warned against reading too much into the surge. 

“Manufacturing saw broad-based weakness across the transport engineering, precision engineering and electronics clusters, with only a temporary ramp-up in pharmaceutical production in January,” said Ms Ling. “We expect the manufacturing slump to extend throughout this year.”  

On a year-on-year basis, the manufacturing sector shrank 2 per cent for the first three months of this year, slowing from the 6.7 per cent decline in the previous quarter.

The construction sector grew by 10.2 per cent, accelerating from the 6 per cent growth in the preceding quarter. It expanded by 6.2 per cent compared with a year ago, improving from the 4.9 per cent growth in the previous quarter, supported by both public and private sector construction activities.

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