GDP growth disappoints, at lowest since Q3 2012

A lacklustre showing in the manufacturing sector led to the Singapore economy performing worse than the market had expected in the second quarter of this year, expanding 1.7 per cent compared to a year ago, the slowest since the third quarter of 2012.

The disappointing performance also prompted some economists to downgrade their forecasts for Singapore's full-year growth.

The slower-than-expected numbers have also raised the possibility of the Monetary Authority of Singapore (MAS) acting to slow the appreciation of the Singapore dollar in its next policy review in October, some economists say.

The latest data is based on advance estimates of gross domestic product (GDP) released by the Ministry of Trade and Industry (MTI) yesterday.

Economic growth in the second quarter of this year, at 1.7 per cent, is slower than the 2.8 per cent growth seen in the first quarter, and lower than the median growth forecast of 2.4 per cent year-on-year by private-sector economists polled by Bloomberg prior to the data's release.

The figure is also much weaker than the 2.7 per cent prediction in a quarterly survey of economists by MAS released in June.

On a seasonally adjusted quarter-on-quarter annualised basis, MTI said overall GDP contracted 4.6 per cent - a reversal from the annualised 4.2 per cent growth in the preceding quarter.

The market had been expecting a quarter-on-quarter contraction of 1.5 per cent.

Growth in the manufacturing sector contracted 4 per cent year-on-year, a worse performance from the first quarter's 2.7 per cent decline. This was largely due to a fall in output in the biomedical manufacturing and transport engineering clusters.

Services eased to 3 per cent on a year-on-year basis, lower than the 4.2 per cent growth in the previous quarter. This was mostly due to slower expansion in the wholesale & retail trade and business services sectors, as well as a contraction in the transport & storage sector.

The Government has maintained its full-year GDP growth forecast at between 2 and 4 per cent.

Following the release of the flash estimates, the Singapore dollar hit a five-week low yesterday morning. The currency lost as much as 0.4 per cent to 1.3622 per US dollar, its weakest since June 8.

Barclays economist Leong Wai Ho said he has lowered his forecast for full-year economic growth from 3.4 per cent to 2 per cent. The Government is also likely to narrow its forecast range to 2 to 3 per cent, from the current 2 to 4 per cent, said Mr Leong.

ANZ economists Glenn Maguire and Daniel Wilson expect growth to pick up in the second half of this year.

However, if the economy continues to languish, MAS has room to ease its Singdollar policy, they noted.

Singapore conducts monetary policy by managing the exchange rate against a basket of currencies of its major trading partners.

While Citibank, ING and Nomura agreed that the disappointing second-quarter figures raise the likelihood of a MAS loosening in October, Citibank's Kit Wei Zheng said that things are "not yet at tipping point".


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