SINGAPORE: Singapore's economy expanded by 2 per cent last year, propped up by a strong showing in the fourth quarter as manufacturing output surged, according to data released by the Ministry of Trade and Industry (MTI) on Friday (Feb 17).
The full-year growth figure picked up pace slightly from 2015's 1.9 per cent, which was Singapore's weakest annual growth rate since 2009. It also came in higher than the advance estimate of 1.8 per cent and surpassed the Government's forecast for 2016 growth to be between 1 and 1.5 per cent.
Year-on-year, gross domestic product (GDP) grew 2.9 per cent over the October to December period, beating the Government’s earlier estimate of 1.8 per cent growth and was much faster than the 1.2 per cent growth in the third quarter.
On a quarter-on-quarter seasonally-adjusted basis, the economy expanded 12.3 per cent. This was up from the 9.1 per cent initially expected and marked a turnaround from the 0.4 per cent contraction in the July to September period, meaning that Singapore averted a technical recession defined as two straight quarters of declines in economic output.
The faster pace of growth in the final quarter of 2016 was largely due to better performance in the manufacturing and transportation & storage sectors, as well as other services industries.
The manufacturing sector grew by 11.5 per cent year-on-year, accelerating from the 1.8 per cent growth in the previous quarter, on the back of robust growth in the electronics and biomedical manufacturing clusters. Compared to the previous three months, factory output rebounded strongly from the 5 per cent decline in the third quarter to grow 39.8 per cent in the final three months of 2016.
Growth in the other services industries was 3.9 per cent, up from 3.6 per cent in the previous quarter. On a quarter-on-quarter basis, the sector grew at a seasonally-adjusted annualised rate of 1.3 per cent, moderating from the 5.7 per cent growth in the previous quarter, the MTI report showed.
On the other hand, the construction sector continued to underperform due to declines in private sector construction activities. The sector shrank 2.8 per cent year-on-year in the fourth quarter, extending the 2.2 per cent contraction in the previous three months. On a quarter-on-quarter basis, the sector expanded at a seasonally-adjusted annualised rate of 0.8 per cent, a reversal from the 12.6 per cent contraction in the previous quarter.
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In response to a question from Channel NewsAsia, Permanent Secretary for Trade and Industry Loh Khum Yean said the manufacturing sector’s better-than-expected performance in the fourth quarter was a surprise and expects this turnaround in factory output to continue into 2017.
However, Mr Loh noted that the outlook for the rest of the manufacturing and services industries appears mixed, with certain sectors such as marine and offshore, retail and food services likely to remain in tough waters.
Given the "mixed and varied picture", MTI expects next year's GDP growth to be "broadly similar" to 2016 and has maintained its 2017 growth forecast at a modest pace of 1 to 3 per cent.
In the report, MTI said that global growth is projected to pick up slightly in 2017, led by growth improvements in the US and key ASEAN economies such as Indonesia and Malaysia.
Nonetheless, uncertainties and downside risks in the global economy remain. Apart from possible political risks and economic uncertainties from upcoming elections in key eurozone economies, there are also signs of a rise in anti-globalisation sentiments. If protectionist approaches become the norm, global trade will be adversely affected and translate to knock-on effects on economic growth worldwide, MTI said.
In addition, tighter monetary conditions in China could lead to a steeper-than-intended pullback in credit and investment spending, resulting in sharper-than-expected slowdowns in the world’s second-biggest economy, the report added.
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Economists Channel NewsAsia spoke to agreed that Singapore’s economic outlook remains clouded by global uncertainties.
Apart from significant downside risks to global trade, anaemic growth in Singapore’s key export markets will likely weigh on hopes for a robust and sustainable export recovery, according to Ms Krystal Tan from research house Capital Economics.
The outlook for domestic demand is also subdued with the US Federal Reserve set to unveil further interest rate hikes, Ms Tan added. “Higher borrowing costs are likely to weigh on household and business spending, weaken the housing market and dampen construction activity. What’s more, the consumer price index has returned to positive territory and is set to rise further as energy prices continue to creep up. Rising inflation will in turn drag down real income growth.”
Ms Tan said she expects Singapore’s GDP growth to come in at 1.5 per cent for both 2017 and 2018.
Even as recent economic indicators such as export and manufacturing output suggest a likely bottoming in the ongoing slowdown, CIMB Private Bank economist Song Seng Wun cautioned against being too optimistic.
“It is encouraging to see that growth for the year is faster than expected but that’s just on the surface,” the veteran economist told Channel NewsAsia, noting that “vulnerable spots” remain in both the manufacturing and services industries.
Given the uneven recovery, sentiment on the ground remains downbeat. “If export growth continues, we may be seeing early signs of a broad-based recovery but businesses need to be convinced that what they are seeing now can be sustained. If you ask any company now, they’d say they are not aggressively hiring and will only add to the payroll if there is a need to.”
Mr Song said he expects the local labour market to stay soft at least for the first half of this year. “At this point, things certainly look encouraging but there will only be more hiring when we see a broad-based recovery … hopefully we can see that by the second half, barring any external shocks.”