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Singapore’s Q2 GDP growth slows to 2.1% as manufacturing weakens

Disappointing economic data out from Singapore, for the April-June period. The economy contracted for the first time in seven quarters - declining by 0.8% from the previous three months.

SINGAPORE: Singapore's economy expanded at a slower pace of 2.1 per cent in the second quarter from a year ago, hurt by a slowdown in manufacturing, according to advance estimates from the Ministry of Trade and Industry (MTI) on Monday (July 14).

The increase in second quarter gross domestic product (GDP) was slower than the 4.7 per cent year-on-year growth in the first quarter, and slower than the median estimate of 3.1 per cent by economists in a Reuters poll.

On a quarter-on-quarter seasonally-adjusted and annualised basis, Singapore's economy shrank 0.8 per cent, a reversal from the 1.6 per cent growth in the preceding quarter. It was the first sequential contraction since the third quarter of 2012, an MTI spokeswoman said.

The manufacturing sector grew 0.2 per cent in the second quarter from a year ago, down from the 9.9 per cent increase in the first three months of 2014. The deceleration in growth was largely due to a contraction in electronics output and slower growth in transport engineering output, MTI said. 

Singapore's semiconductor sector took a hit in April when an electronics factory shifted its production offshore. As a whole, manufacturing fell by 19.4% quarter on quarter, posting its worst quarterly performance in three years. 

" I think moving forward, this is likely to be more of a one-off event, rather than something that we will see over and over again," said Credit Suisse economist Michael Wan. "So I do expect some improvement in electronics activity, moving into the third and fourth quarters."

Also pulling down the numbers - the strong data in the January-March period - with robust showing from pharmaceuticals and offshore marine engineering.

Services rose 2.8 per cent, while construction gained 5 per cent. MTI said the moderation in services growth was largely due to slower expansion in the wholesale and retail trade and transportation and storage sectors. And while services make up the largest contributor to Singapore's growth - the sector is under increasing pressure amid labour constraints in a restructuring economy.

"The deceleration from the services sector also came through on a year-on-year basis, and in terms of growth contribution, it may have knocked off between 0.5 and 1 percentage points from growth," said Mizuho Bank's Senior Economist Vishnu Varathan.

Given the latest numbers, some private sector economists have trimmed their outlook for the year. Citi trimmed its 2014 GDP growth forecast to 3.1 per cent year-on-year, from 3.5 per cent, while UOB revised its forecast to 3.5 per cent, from 4.2 per cent. OCBC said that after accounting for the weaker-than-expected Q2 data, its growth forecast will be shaded down from 3.5 per cent to 3.3 per cent.

Still, most are optimistic that the improving global economy will help provide a lift to Singapore. Said Mr Varathan "In particular, we've seen the PMIs for China - both for the SMEs and for the large firms - turning decisively higher. It's still nascent, but it does look encouraging in terms of what it could mean for the region's exports as well. And Singapore is also likely to benefit to some extent."
Most economists are still expecting a pick-up in the second half of the year. The official GDP growth forecast for 2014 is between 2 and 4 per cent.

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