Singaporean economy expands y/y in Q3 but contracts sequentially, MTI lowers 2016 GDP forecast

Singapore’s third quarter economic growth was upwardly revised to show a less severe contraction than the one reported in the advance estimate. The September quarter GDP was revised higher to a growth of 1.1 percent year-on-year, up from the initial flash estimate of 0.6 percent year-on-year. On a sequential basis, the economy contracted 2 percent, as compared with the initial estimate of a contraction of 4.1 percent.

The economic growth data was upwardly revised because of a stronger manufacturing output in the month of September, following the rebound in high frequency data released after the initial GDP estimate, noted HSBC in a research report.

Manufacturing had stabilized in the second consecutive quarter and grew 1.3 percent year-on-year in the third quarter, whereas services remained flat at 0 percent year-on-year. Wholesale trade weighed greatly on the services sector because of subdued petroleum and petroleum products.

But the finance and insurance sector also was a drag in the midst of weakness in offshore financial intermediation, security dealing segments and fund management. Construction grew in the third quarter, albeit slowly. It grew 1.6 percent year-on-year in the third quarter as compared with the 2 percent growth recorded in the second quarter. Construction was driven by public sector construction works.

There are certain key risks on the downside in the global economy noted by the MTI, which are pretty familiar to market watchers. The downside risks include a sharper-than-anticipated deceleration in China, Brexit and political risks and uncertainties resulting in greater economic uncertainties such as the backlash against globalization and trade. MTI projects the Singaporean economy to expand between 1 percent and 1.5 percent in 2016, a downward revision from earlier forecast of between 1 percent and 2 percent.

“We anticipate that 4Q16 GDP growth could be in the range of 0.6 percent yoy (+4.8 percent qoq saar) to bring full-year growth to 1.3 percent yoy, which is close to the narrowed 2016 official growth forecast of 1-1.5 percent yoy”, said Selena Ling, Head of Treasury Research & Strategy, OCBC Bank in a research report.

The drags from finance & insurance segments and wholesale trade are expected to extend into the fourth quarter. IESingapore projects the 2016 NODX growth at between -5.5 percent and -5 percent year-on-year. This will not be a surprise as the year-to-date NODX growth is around -5 percent, noted OCBC Bank.

“Our 2017 GDP growth forecast stands at 1-2 percent yoy (mid-point 1.5 percent), which is in the lower half of the official 2017 forecast of 1-3 percent”, added Selena Ling.