Singapore GDP puzzles USD/SGD trend but likely to be upward

The Singapore's final Q3 GDP was recently adjusted up to 1.9% YoY vs the advance report of 1.4%. This was majorly driven by the robust contribution from services sector.

The real estate and construction division was creeping slower than in Q2 but the manufacturing sector was the main drag on the economy. Of greater concern, the weakness came from the electronics sector.

This suggests we could see a sharp drop in October's industrial production due tomorrow.

Growth was adjusted up to 1.9% seasonally-adjusted q/q annualized vs 0.1% originally and partly reversed the -2.6% in Q2. This highlights the volatile nature of Singapore's GDP, even when measured on a seasonally adjusted basis.

As per the government's projection growth in 2015 should be closer to 2%. Given 2.2% growth in the first three quarters of the year, this implies a moderation in Q4 to around 1.7%.

For 2016, the government is projecting 1-3% vs preliminary estimates over the past two years of 2-4%, implying a continued downshift in growth.

More than anything, this reflects 1) the sluggish global growth recovery; 2) the continued drop in potential growth for the economy due to a host of factors, including demographics, maturing economy, and hollowing out of the electronics sector on rising costs.

For USD/SGD, it continued to ease this morning to 1.4070 after falling 0.5% yesterday in line with the drop in USD-Asia. On speculation grounds, add longs on near month futures of USD/SGD that has ideal risk-reward qualities.