Singaporean economic growth decelerates in Q2 2018, monetary policy likely to be tightened in October

The advanced estimates of Singapore’s annual and sequential economic growth in the second quarter came in lower than consensus estimates. The first quarter data was also downwardly revised. The Singaporean economy grew 3.8 percent year-on-year. On a sequential basis, the economic growth slowed to 1 percent from 1.5 percent seen in the prior quarter.

Sector wise, the biggest surprise came from a 14.6 percent sequential decline in construction. This follows a rise of 0.9 percent in the first quarter. The fall has been linked to continuous softness in private sector construction activity. On a year-on-year basis, construction growth came in at 4.4 percent in the second quarter as compared with the fall of 5.2 percent in the first quarter.

Other sectors’ performance came in mixed. Manufacturing growth eased to 8.6 percent from 9.7 percent on a sequential basis. Manufacturing has eased for two straight quarters on a year-on-year basis, implying that the export cycle is now maturing. Meanwhile, this reading is a bit at odds with the evolution of industrial production and NODX which was suggesting a sequential rise, noted ANZ in a research report.

Services growth eased to 3.4 percent year-on-year in the second quarter from 4 percent in the first quarter. Even so, it rose 2.5 percent sequentially, widely consistent with our expectations of a sequential rebound from the 1.4 percent contraction seen in the first quarter.

“We now see downside risks to our full year 2018 forecast of 4 percent. Nonetheless, considering that the H1 2018 outturn is still well above the upper bound of the MAS’s forecast range of 2.5-3.5 percent, we continue to expect further tightening of monetary policy in October”, added ANZ.