Singapore's stronger services offsets weaker manufacturing

Q2 GDP was revised up slightly to -4.0% q/q saar from -4.6% in the advance estimate - better than our (-4.7%) and consensus (-4.6%) forecasts, while on a y/y basis, GDP was revised up to 1.8% from 1.7% (Barclays and consensus: 1.6%). The better outturn was led by the services sector, in particular wholesale & retail trade, IT & communications, and financial services. 

This more than offset downward revisions to manufacturing, which fell 18.3% q/q saar - down from -14.0% in the advance estimate. All told, while slightly better than expected, growth was still disappointingly weak in Q2, and consistent with our 2.0% growth forecast for 2015.

Alongside the second estimate, the MTI updated its forward guidance for 2015, narrowing its growth forecast range to 2.0-2.5% from 2-4% previously - broadly in line with our expectations but somewhat stronger than some market participants were expecting. While noting that growth in H1 had come in weaker than expected, the MTI remained cautiously optimistic over the prospects for H2, citing a gradual, albeit 'uneven' pick-up in US and Euro Erea growth, which should offset a weaker growth outlook in China (with downside risks from property and stock market corrections) and Asean (weighed by weak China demand and softer domestic demand)

"Meanwhile, comments from MAS and MTI officials suggest a continued focus on the structural drivers of inflation, with core and headline inflation forecasts unchanged despite the recent fall in oil prices, and the government 'optimistic' on achieving its 2-3% productivity growth target, supporting our view of no change to the SGD NEER policy parameters at the upcoming October MPS", says Barclays.