SINGAPORE: Continued strong gains from the manufacturing sector, coupled with a surprise pick-up in the services sector, have pushed the Singapore economy to grow at a quicker-than-expected pace in the second quarter of 2017.
The re-acceleration in several segments of the services sector, namely finance & insurance, wholesale & retail trade, and business services, indicate some much-needed signs that growth is "broadening" to other parts of the economy, the Ministry of Trade and Industry (MTI) said on Friday (Aug 11). Since the fourth quarter of 2016, GDP growth has been pivoted on the manufacturing sector – the sole bright spot in the economy – raising concerns about uneven growth.
Still, the healthier outlook remains tempered with caution.
In fact, the year-on-year growth number of 2.9 per cent for the second quarter could be the economy’s strongest showing this year, given MTI’s expectation for 2017 growth to come in at 2.5 per cent. This means that the economy will likely see an average growth of about 2.3 per cent of the second half of the year after having expanded 2.7 per cent over the first two quarters.
A taper-off in the manufacturing sector’s explosive growth will be the reason why, economists told Channel NewsAsia. The improvements in the services sector, while welcomed, remain weak and will unlikely be able to pick up the slack, they added.
“Our base case is for manufacturing to slow down over the second half. Some of the improvement in the domestic services components will partly offset, but we are still looking for a slowdown in the headline GDP number,” said Credit Suisse economist Michael Wan, who has a below-consensus full-year growth estimate of 2.3 per cent.
Exports will likely cool as China’s economic growth moderates, Mr Wan added. “By virtue of the fact that exports make up a big component of Singapore’s GDP, the headline GDP number should moderate as we move into the second half.”
Nomura economist Brian Tan agreed, noting that there are already signs of regional exports “losing some of that steam”.
LABOUR MARKET NOT BENEFITING FROM BETTER GROWTH
Another main concern that economists have is the weakness in Singapore’s labour market, which has thus far failed to benefit from the positive momentum in the economy.
Preliminary estimates from the Ministry of Manpower showed the unemployment rate for Singaporeans fell to 3.3 per cent in June, from 3.5 per cent in March. For residents, the rate stood at 3.1 per cent in June, down from 3.2 per cent. The overall unemployment rate remained unchanged at 2.2 per cent.
Total employment declined by 8,400 in the second quarter, compared to a decrease of 9,400 in the preceding quarter.
While the unemployment rate has dipped in the second quarter, Nomura’s Mr Tan said it remains elevated with employment growth continuing to be lacklustre. “Unfortunately, the labour market will likely remain weak.”
And without a convincing recovery in the jobs market, the Monetary Authority of Singapore (MAS) will likely keep its policy settings unchanged at its upcoming policy decision in October.
“Obviously, the pick-up in growth is welcomed but they will need more evidence to show better growth is spilling over in a more significant manner into the labour market and there is a tightening in the jobs market, which will help to drive up wages and have an implication on inflation going forward,” Mr Tan said.
Ms Selena Ling, head of treasury research & strategy at OCBC Bank, added that the crux for any tweaks by the MAS in October would boil down to the 2018 outlook for growth and inflation.
While global growth prospects are brightening, there is still "considerable uncertainty" about inflation due to subdued oil prices and weakness in the domestic labour market. Meanwhile, with the US Federal Reserve likely to start unwinding its balance sheet in September, some caution may also be warranted in case of any mini-market tantrums, she added.
MAS kept its exchange rate-based monetary policy unchanged in April, noting that a neutral policy stance is appropriate for an extended period.
The central bank's deputy managing director Jacqueline Loh on Friday said the narrowed GDP growth forecast falls within the planning parameters of the central bank's latest policy decision and current policy settings remain appropriate.