SINGAPORE: The Singapore economy has turned in yet another better-than-expected report card.
With the manufacturing sector continuing its stellar run, third-quarter gross domestic product (GDP) grew by 5.2 per cent compared to a year ago, trumping the earlier-announced advance estimates and second-quarter growth number.
This marked the trade-reliant economy’s best showing since end-2013.
On a quarter-on-quarter seasonally adjusted basis, Singapore’s economy expanded by a whopping 8.8 per cent, also beating official estimates and was well above the second-quarter’s 2.2 per cent growth.
The Ministry of Trade and Industry (MTI) on Thursday (Nov 23) also upgraded its full-year growth forecast for 2017 to 3 to 3.5 per cent, from the previous range of 2 to 3 per cent.
This prompted some private-sector economists to revise their estimates upwards. OCBC now expects Singapore’s economic growth for 2017 to be at 3.4 per cent, a nudge higher than 3.3 per cent, while ANZ is predicting 3.3 per cent instead of 3 per cent.
But underneath the increasingly cheerful economic indicators, MTI told reporters at a media briefing that unevenness in growth remains.
The construction sector, for one, remained in the doldrums and is expected to stay lacklustre.
Even within sectors, patchy growth persists. The transport engineering cluster was the exception in a booming manufacturing sector, while growth for telecommunications in the information & communications sector was subdued, said MTI’s permanent secretary Loh Khum Yean.
Amid consensus view for the manufacturing sector, which has been in the driver’s seat for GDP growth this year, to see a moderation soon, the latest headline growth figure may be the highest it can get.
“As we get into 2018 or even as soon as fourth quarter, the base effect for the semiconductor segment will start turning unfavourable,” said Nomura economist Brian Tan, referring to the turnaround in manufacturing which began in the final three months of last year.
Since then, the sector has outperformed on the back of strong global demand for semiconductors and related equipment.
“The question is if we had 18.4 per cent growth in manufacturing and that has not lifted the economy up as dramatically as that number would imply, what happens when growth slows? I don’t think we can sustain this 5.2 per cent going forward.”
With growth for the first three quarters coming in at 3.5 per cent on a year-on-year basis, the Government’s revised growth forecast for the full year to 3 to 3.5 per cent also “implicitly” suggests that, added Mr Tan.
“MTI’s forecast would imply the fourth quarter coming in the range of about 1.3 to 3.6 per cent. If you take the mid-point of the range, it is still a slowdown from 5.2 per cent.”
"RECOVERY IS BROADENING"
The good news is that economists expect this unevenness to be reduced come 2018, echoing the Monetary Authority of Singapore’s (MAS) latest macroeconomic review. The central bank had said it expects the economy to see a “smaller degree of growth dispersion across sectors” next year.
DBS economist Irvin Seah expects the driver of growth “to interchange heading into 2018”.
“The main story behind the GDP numbers is that the recovery is broadening,” Mr Seah wrote in a report, citing expansion of 3 per cent year on-year in the services sector in the third quarter.
“Moderation in the manufacturing growth juxtaposed with continued improvement in the services sector’s outlook could see the latter becoming the main engine of growth in 2018,” he added.
Echoing that, ANZ's head of Asia research Khoon Goh said the pick-up in economic activity is becoming more broad-based and overall financial conditions remain very supportive of growth.
While the Government expects GDP growth for 2018 to “moderate” from this year, economists said the forecast range of 1.5 to 3.5 per cent points to a more optimistic growth outlook.
Standard Chartered economist Jonathan Koh, who described the 2018 GDP forecast range as a “fair” one, explained: “Last year’s forecast from MTI for 2017 was 1 to 3 per cent so if you compare it to their latest forecast, it’s a higher range. This means they are more optimistic about growth than they were last year.”
One economist, however, has a contrarian view.
Mr Rob Carnell, ING’s head of research for Asia, described the forecast range for economic growth in 2018 as “unreasonably downbeat”.
“You’ll need to get pretty lousy quarterly growth numbers for 2018 to get to the lower end of that … Even the higher end of that range is extremely conservative,” he told Channel NewsAsia, adding that his preliminary expectation is for 2018 full-year growth to come close to 4 per cent.
“If that trend is not rocked by weaker-than-expected activity figures over the coming months, and inflation data at least holds its ground or rises slightly, this should be sufficient for the MAS to consider a modest tightening adjustment to their monetary policy stance as early as their April policy meeting," Mr Carnell said.