Weak Q1 data prompts full-year downgrades by economists

Weak Q1 data prompts full-year downgrades by economists

Singapore - They are only advance estimates of Singapore's economic growth in the first quarter of this year, but are enough to deepen fears of a technical recession among economists.

Some have even downgraded their growth forecast for the full year.

Their chief concern is that the projections portray a deeper weakening in the economy than thought.

OCBC's Selena Ling said: "Given the Q1 2016 gross domestic product (GDP) growth flash estimate disappointment, we downgrade our full-year growth forecast from 2 per cent year on year (yoy) to 1.8 per cent yoy."

Business Monitor International (BMI), also bearish, said: "We have incrementally downgraded our real GDP growth forecast to 1.7 per cent, from 1.9 per cent previously, as domestic and external headwinds continue to bite."

They were reacting to the advance estimates of Singapore's GDP growth for the quarter ended March 31, released by the Ministry of Trade and Industry (MTI) on Thursday.

MTI estimated that GDP grew 1.8 per cent yoy, unchanged from the preceding quarter. Though this narrowly beat expectations, a further breakdown of the figures left economists more worried than upbeat.

Perhaps the clearest indication of slower growth came from none other than the central bank itself, economists noted.

The Monetary Authority of Singapore (MAS) said on Thursday that while growth projections remain, the level of activity in the economy is likely to be "slightly below potential".

In addition, the economy did not grow from the preceding quarter in quarter-on-quarter, seasonally-adjusted, annual rate (qoq saar) terms; the economy had grown 6.2 per cent in the October-to-December quarter.

This means that growth in subsequent quarters will have to be even higher to lift the numbers for the full year.

Citi's Kit Wei Zheng estimates that this needs to average at 1.6 per cent over the next three quarters if 2016's growth is to hit 2 per cent - the mid-point of official projections of 1 to 3 per cent growth for the year.

He is not holding his hopes up high: "The risk of technical recession in Q2 has likely increased materially, which may bring about an even sharper official forecast downgrade in August," which is when MTI will make another forecast for GDP growth in 2016.

Mr Kit is projecting this to be at "0.5 per cent to 1.5 per cent or lower".

Aside from the stagnant quarter-on-quarter growth, sectors within the economy are showing signs of a slowdown.

A weakening services sector, which accounts for two-thirds of the economy, added to the gloom.

It grew only 1.9 per cent yoy, less than the 2.8 per cent of the preceding quarter. In qoq saar terms, it shrank by 3.8 per cent from 7.7 per cent previously.

DBS senior economist Irvin Seah said: "Historically, if this sector turns, the economy turns along with it. A downward revision of the headline GDP growth should not be discounted ... We maintain the view that risk of a technical recession should not be discounted."

Earlier this month, Trade Minister Lim Hng Kiang had said that global economic uncertainty will continue to weigh on Singapore's growth over the next three to five years.

Flagging these concerns, UOB's Francis Tan on Thursday noted the dimmer prospects for the services sector: "The negative effects of a slowdown in the external environment have become more significant for Singapore's domestic services sector, as trade-related services sectors and financial services activities have pulled back."

Manufacturing remained in the doldrums, but showed resilience; it recorded a sixth straight yoy contraction with a decline of 2 per cent this quarter, but posted a strong 18.2 per cent qoq saar growth.

MAS played down this uptick, saying that it "largely reflected a temporary ramp-up in pharmaceutical production in January".

The construction sector posted the strongest growth, coming in at 6.2 per cent yoy, or 10.2 per cent qoq saar. Yet, even the durability of this pillar of support was called into question. ANZ economist Ng Weiwen said: "Strong growth in construction is not sustainable, as lending to the construction sector has weakened."

Taken together, sectoral performances point towards gloomier days ahead.

Said Philip McNicholas, ASEAN economist at BNP Paribas: "Stripping out construction and pharmaceutical output, which account for 20 per cent of GDP, we estimate the rest of Singapore's economy contracted at a 2.7 per cent qoq saar pace."

MTI will release fuller GDP estimates for the first quarter in May.

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This article was first published on April 15, 2016.
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