Singapore's March effect may be a one-off event

Singapore's Q1 growth was decent, owing mainly to a solid improvement in March. NODX increased 18.5% y/y in March, supported by pharmaceuticals and other one-off lumpy items, versus an average 2.7% decrease in January-February. Q1 growth was upwardly revised to 2.6% y/y from an advance estimate of 2.1%, resulting in a third consecutive quarter of q/q growth. 

"Although the global economy remains sluggish, base effects is expected to become more favourable in Q2. Singapore's economy remains on track to meet the government's target of 2-4% growth this year. Growth is expected at 3%, despite downside risks on both the domestic and the external front", estimates Standard Chartered.

Domestic growth improved in Q1, but analysts think the improvement is not sustainable. Domestic growth added 2.2ppt to 2.6% y/y growth in Q1, versus 1.4ppt in Q4-2014, notes Standard Chartered. Much of this was due to stronger private consumption and investment. External demand added 9.1ppt to growth, but this was likely offset by an almost equivalent drain in inventories. This also probably implies a lack of confidence to stock inventory for future sales, reflected in negative sentiment in PMIs in recent months. Export growth was stronger than import growth (4.7% y/y versus a 0.1% fall) as imports were likely weighed down by lower oil import values. 

The services sector was the main contributor to Q1 growth, and we expect it to drive future growth as well. Growth in the financial services sub-sector was boosted by resilient loan growth and higher net interest margins. Business services were largely supported by rental activity, and scientific and technical services. Non-oil re-exports improved wholesale and retail trade, but the transport/storage and accommodation/food services sectors did not fare as well.

On the non-services sector front, construction activity provided modest upside to growth, helped by the private sector. In contrast, the manufacturing sector contracted for a second consecutive quarter. Industrial production growth has been nearly zero q/q in recent years.