Singapore's Q1 GDP growth at 4.4%; MTI revises full-year figure to 2.5-3.5%

First-quarter growth mainly boosted by manufacturing, finance and insurance, and wholesale trade sectors

SINGAPORE'S gross domestic product (GDP) grew 4.4 per cent in the first three months of 2018, with full-year growth expected to come in at "2.5 to 3.5 per cent" this year, said the Ministry of Trade and Industry on Thursday.

This was a rare first-quarter revision to the full-year forecast.

Yet while the narrowing come "a little earlier than expected", the range itself is not a surprise given MTI's earlier expectation that growth would come in "slightly above the middle" of the previous "1.5 to 3.5 per cent" range, said OCBC economist Selena Ling.

The last time MTI formally revised its full-year forecast based on Q1 data was 2011, when it lifted the range. Last year, though, MTI maintained its forecast but added that growth was likely to come in above 2 per cent.

Up marginally from the initial estimate of 4.3 per cent, the 4.4 per cent figure for first quarter year-on-year growth was in line with expectations and faster than the 3.6 per cent growth in the preceding quarter.

Growth was primarily supported by the manufacturing, finance and insurance, and wholesale trade sectors.

But as manufacturing moderates, economists expect momentum to slow in the coming quarters.

"To the degree that external demand continues to soften this quarter, alongside elevated inventory accumulation in recent quarters, Singapore's GDP growth is likely to slow through Q2," said JPMorgan economist Benjamin Shatil.

Maintaining a 2.8 per cent full-year growth forecast, UOB economist Francis Tan thinks GDP growth in the next three quarters could be lower than Q1's showing.

"This is predicated on a slower manufacturing sector due to the expected easing in China's exports and investment growth," he added.

DBS economist Irvin Seah and OCBC's Ms Ling maintained full-year growth estimates of 3 per cent.

Ms Ling noted that on a quarter-on-quarter seasonally adjusted annualised (qoq saar) basis, Q1 growth was 1.7 per cent, down from 2.1 per cent the preceding quarter.

"This could sustain into 2Q18 where the qoq saar growth number could flat-line or even decline slightly," she added.

In contrast, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye raised their full-year growth forecast to 3.5 per cent, from 3.1 per cent previously, "to reflect the stronger services uplift and more modest manufacturing slowdown".

" We expect continued resilience in outward-oriented services and firmer recovery in domestically-oriented services, which will help offset the easing in manufacturing and trade."

SIM Global Education senior lecturer Tan Khay Boon noted "some signs pointing to greater competitiveness in Singapore", such as a rise in value added per worker and a fall in unit labour costs.

In making its forecast, the MTI noted that the global economy has remained on a steady expansionary path since the start of the year.

In February, the MTI highlighted that the global growth outlook for 2018 had improved slightly. "Since then, the growth outlook of some of Singapore's key final demand markets has improved further, with the IMF (International Monetary Fund) upgrading its 2018 forecasts for the US and Eurozone," said MTI permanent secretary Loh Khum Yean yesterday.

However, uncertainties and downside risks have increased since early 2018, such as the risk of escalating global trade tensions.

Against a backdrop of rising global interest rates and tightening financial conditions, "financial vulnerabilities in emerging market economies could surface, particularly for those with elevated debt levels, including in the region", said Mr Loh.

If this occurs, there could be a pull-back in investment and consumption growth in these economies, he added.

He said MTI's full-year growth forecast takes into account "the robust performance of the Singapore economy in the first quarter and the slightly improved external demand outlook", barring the full materialisation of downside risks.

Responding to questions from the media, Mr Loh said the latest forecast takes into account the results of Malaysia's recent general election and that MTI is "monitoring developments there very closely".

Edward Robinson, assistant managing director and chief economist of the Monetary Authority of Singapore's economic policy group, noted that Malaysia is in a position of fairly strong cyclical growth, and that analysts think "Malaysia's medium-term prospects are intact".

As for the latest developments in US-China trade relations, with an apparent cooling of tensions, Mr Loh declined to speculate but said MTI will review its forecast as appropriate.

With the MAS having just moved to tighten monetary policy in April - the first tightening in six years - economists do not expect a further shift at the central bank's next policy meeting in October.

With headline inflation "very subdued" at 0.2 per cent in Q1, Ms Ling thinks MAS "is likely to adopt a wait-and-see attitude...given that growth-inflation dynamics are not out of sync with their forecasted trajectories".

Maybank's Dr Chua and Ms Lee similarly expect MAS to maintain its current "slight appreciation bias" in October.