Construction looks to turn corner with slower 4.6% Q2 decline

THE tide may be turning for the ailing construction sector, which has been a persistent drag on growth, a government economist has said.

Construction shrank by 4.6 per cent year on year in the second quarter, with the decline easing from 5.2 per cent in the quarter before, according to figures from the Ministry of Trade and Industry (MTI) on Monday.

The contraction still marked a 15.4 per cent quarterly fall, on a seasonally adjusted, annualised basis. But growth is expected to pick up, the latest property curbs notwithstanding, with public projects forming the bedrock of the sector's performance.

"The weakness in construction output is primarily because of the weakness in construction demand in 2015, 2016 and also the first half of 2017," Yong Yik Wei, director of the ministry's economics division, told a briefing.

"Since the second half of 2017 and including the first half of this year, we've seen construction demand pick up, so we should see a a bottoming out in the contraction of the construction sector towards the end of the year . . . and, obviously, next year should be a better year for the sector."

Still, public sector construction works "remain lacklustre", said Selena Ling, OCBC's head of treasury research and strategy, "and the recent private residential property cooling measures are likely to weigh as well".

Meanwhile, broad-based gains in manufacturing again spurred the economy on in the quarter, with the sector notching a 10.2 per cent expansion, which the MTI called "robust" despite a moderation from growth of 10.8 per cent in the first quarter. On a quarterly, seasonally adjusted, annualised basis, the sector was up 1.8 per cent, cooling sharply from 26.2 per cent in the quarter before.

The electronics, biomedical and transport engineering clusters drove manufacturing growth, with semiconductors once more a darling among the electronics segments. "By contrast, the rest of the segments within the electronics cluster posted output declines," the MTI said in its report.

Finance and insurance helped to push up the services sector, which saw overall growth of 2.8 per cent for the three months - slower than 4 per cent in the first quarter, and a change of 0.4 per cent on a quarter-on-quarter, seasonally adjusted, annualised basis.

The MTI said economic growth will continue to be supported largely by external-facing sectors, but the expansion will moderate in manufacturing and in service industries such as finance and insurance, wholesale trade and transportation and storage.

Economist Tan Khay Boon, senior lecturer at SIM Global Education, said: "The growth for the rest of the year is likely to be dependent on the services sector, which is supported by the tight labour market and real wage growth."

Mohamed Faiz Nagutha, Asean economist at Merrill Lynch in Singapore, noted that external-oriented sectors continued to outperform domestic ones. "All in, despite the domestic sectors being in a much firmer place than a year ago, the continued outperformance of manufacturing means sectoral distribution of growth remains less than optimal," he warned.