Singaporean economy likely to expand 2.5 pct in 2017, manufacturing likely to drive growth

The first quarter Singaporean economic growth was upwardly revised earlier today to 2.7 percent year-on-year, as was expected, from the earlier estimate of 2.5 percent year-on-year. The upward revision was mainly due to the outperformance of manufacturing at 8 percent year-on-year. Services growth was also upwardly revised a bit to 1.6 percent. The sharp rise in manufacturing, along with steady services growth, countered the weakness in construction that was weighed on by sustained softness in private sector construction works.

MTI expects the economic growth to be above 2 percent in 2017, even though it kept its 1 percent to 3 percent full-year GDP growth forecast. According to MTI, the global growth outlook has rebounded a bit since 2017, driven by developed economies, particularly the U.S., while key ASEAN economies are also likely to pick up in 2017.

Domestically, growth support is expected to depend on the trade-related sectors like manufacturing and transportation & storage sectors. Especially, the outlook was distinctly more positive for the remainder of the year on the back of the solid rebound in global demand for semiconductors and semiconductor manufacturing equipment.

The central bank’s assessment of economic growth and the consumer price inflation is essentially unchanged from the April monetary policy statement. According to Selena Ling, Head of Treasury Research & Strategy at OCBC Bank, the first quarter economic growth upgrade has been greatly anticipated and concur that it does not move the needle for policymakers considerably at this juncture.

“Our 2017 GDP growth forecast of 2.5% yoy remains unchanged, with manufacturing growth to lead at 4.1% yoy, followed by services at 1.7% and construction may return to positive growth territory in 2H to clock 0.7% for 2017”, added Selena Ling.

Meanwhile, the inflation has returned to positive territory at 0.6 percent year-on-year in the first quarter of this year, marking the first positive quarterly print since the third quarter of 2014. This is within the official 2017 inflation forecast of 0.5 percent to 1.5 percent. Furthermore, domestic labor market conditions have evidently weakened with net employment shrinking 8.5k in the first quarter.