Singapore Q3 GDP growth slows less than expected to 2.6% as manufacturing moderates

SINGAPORE'S economic growth grew at a slower pace of 2.6 per cent year on year in the third quarter of 2018 compared to the 4.1 per cent expansion seen in the previous quarter, according to advance estimates released by the Ministry of Trade and Industry on Friday morning.

But even as the economy appears to lose steam, the latest print was still a notch higher than economist expectations of 2.4 per cent growth. And on a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded by 4.7 per cent, faster than the 1.2 per cent growth in the preceding quarter.

The manufacturing sector, which makes up one-fifth of the economy, slowed down as economists expected, hit by base effects, a fading electronics cycle, and trade war concerns. It expanded by 4.5 per cent on a year-on-year basis in Q3, down from the 10.6 per cent growth in the previous quarter. Growth was supported mainly by output expansions in the electronics, biomedical manufacturing and transport engineering clusters.

The services producing industries remained steady, expanding by 2.9 per cent in Q3 – the same pace of growth as in the previous quarter. Growth mostly came from the finance & insurance, business services and wholesale & retail trade sectors.

Construction continued to languish, contracting by 3.1 per cent year on year in Q3, extending the 4.2 per cent decline in the previous quarter. The sector was weighed down by the weakness in public sector construction activities.

For the first three quarters of 2018, the Singapore economy clocked growth of 3.8 per cent, which is the best 9-month performance since 2013. Economic growth is expected to come in within the upper half of the 2.5-3.5 per cent range this year and ease slightly in 2019.

For the rest of the year and 2019, economists expect growth to continue but at a slow and steady pace.

OCBC economist Selena Ling said: “Singapore’s 2019 growth prognosis is far from downbeat, notwithstanding that trade frictions between major economies and related uncertainties could weigh more discernibly on global economic growth.”

She added that domestic demand has strengthened further and is underpinned by an improving labour market and an expected faster wage growth pace in 2018-2019.

OCBC has upgraded its 2018 full-year forecast from 3 per cent to 3.3 per cent after the results.

Similarly, DBS economist Irvin Seah has also raised full-year estimates from 3 per cent to 3.4 per cent.

He said: “Despite the dark clouds of the trade war looming, the outlook for the Singapore economy has remained sanguine. Although the trade disputes between the US and China could indirectly affect Singapore in the near term, it could also bring about opportunities in the medium to longer term.”

“Moreover, while financial market volatilities could weigh on investor confidence and business sentiments in the immediate term, underlying growth fundamentals remain well supported by stronger growth in the global economy.”

However, Maybank economists Chua Hak Bin and Lee Ju Ye seem to have a more pessimistic outlook.

“The US-China trade war will however start dampening trade-related services in 2019 and possibly even the fourth quarter (of 2018),” they said.

“Recent property measures will likely hurt business services and property transactions growth in the coming quarters.”

In a separate announcement by the Monetary Authority of Singapore (MAS) on Friday morning, the central bank decided to slightly increase the slope of the Singdollar nominal effective exchange rate (S$NEER) policy band, in the second consecutive tightening at its half-yearly monetary policy review.

Despite Q3 being the weakest quarter so far this year, the MAS said that the tightening move comes as the Singapore economy "is likely to remain on its steady expansion path in the quarters ahead, keeping output slightly above potential".