SINGAPORE seems to have started the year off on the wrong foot, with economic flash data coming in a shade beneath market expectations in the first quarter.
Gross domestic product (GDP) grew by 1.3 per cent year on year in the first three months of 2019, according to estimates from the Ministry of Trade and Industry (MTI) on Friday morning.
Private economists had earlier guided for 1.4 per cent GDP growth in the quarter in a Bloomberg poll.
In any case, the sluggish uptick makes this Singapore’s worst-performing quarter since the height of the global financial crisis in 2009.
The quarter’s growth eased from the 1.9 per cent expansion charted in the last three months of 2018, but marked a 2 per cent quarter-on-quarter increase on a seasonally adjusted basis.
In a tale of two sectors, Singapore’s manufacturing sector - which makes up about one-fifth of the economy - has slipped into negative territory after expanding every quarter since mid-2016, while construction is back in the black after 10 months of decline.
Manufacturing shrank by 1.9 per cent in the quarter, compared with an expansion of 5.1 per cent in the previous three months, with MTI noting that declining precision engineering and electronics output could not be salved by growth in biomedical manufacturing and transport engineering.
On a quarterly, seasonally adjusted basis, the contraction hit double digits to 12 per cent, much wider than the previous quarter’s 2.7 per cent drop.
Joseph Incalcaterra, Asean chief economist at HSBC Bank, was not alone in anticipating further bad news on the manufacturing front from March factory numbers, saying that “negative data surprises are likely to continue over the short-term as external demand remains weak”.
“Signs of stabilisation in Chinese growth will help support regional exports, but we believe manufacturing output will remain under pressure given the ongoing downward momentum in global semiconductor billings,” he said.
Construction, in contrast, recovered with growth of 1.4 per cent year on year, while its quarterly expansion improved to 7.8 per cent, up from 5.1 per cent in the three months prior. The MTI said that the recovery “was supported by an improvement in private sector construction activities”, although other watchers were mixed on how much of a a sustained rebound the sector will enjoy, as infrastructure projects in the pipeline may meet their match in residential property market-cooling measures.
Meanwhile, the services sector grew 2.1 per cent year on year in the first quarter, better than the 1.8 per cent growth charted in the previous quarter. It also expanded 4.8 per cent on a quarterly basis, against a 2.8 per cent improvement in the last three months of 2018.
The services growth was largely on the back of the information and communications and business services segments, according to the MTI.
Amid expectations of a modest economic growth rate, Singapore’s central bank kept its Singapore dollar policy unchanged in its half-yearly statement also issued on Friday morning.
“Over the last six months, the contribution of the manufacturing sector to GDP growth has waned, reflecting the maturing of the global electronics cycle and the economic slowdown in China,” the Monetary Authority of Singapore observed in its statement.
But it added that parts of the services sector - including in the financial, business services and infocomm technology industries - are expected to “continue to benefit from steady domestic demand in the region and increased investments in digitalisation”.
Citi analysts Kit Wei Zheng and Ang Kai Wei seemed to agree, writing that “deceleration in trade-related clusters should be cushioned by pockets within services, on steady regional domestic demand”.
Still, economists Chua Hak Bin and Lee Ju Ye from Maybank Kim Eng, expect growth to slacken in other services industries. Weaker loans growth and bourse trading could weigh on finance and insurance, while a slowdown in tourism numbers will take its toll on accommodation and food services, they suggested.
Vishnu Varathan, head of economics and strategy at Mizuho Bank, argued in a morning note that the services industries are heavily dependent on trade and manufacturing and added: “What's more, the property cooling measures dragging on related mortgage and real estate services activity has acted to dampen services activity overall.”
Pointing to global trade tensions and geopolitical risks, he said: “It is premature to declare that the economy has bottomed unequivocally.”
Tan Khay Boon, senior lecturer at SIM Global Education, called the outlook for the coming three months challenging as well.
“The electronics cluster is not out of the woods yet and expansions in biomedical manufacturing are highly erratic,” said Dr Tan. “The turnaround in the construction sector is also not sufficient to create an upward momentum to growth.
“Growth will need to be supported by the services sector, which requires strong employment and controlled inflation to generate domestic demand.”
Selena Ling, head of treasury research and strategy at OCBC Bank, raised doubts over whether a stronger end to the 2019 would be enough to make up for economic weakness in the first six months.
“Until we see a clear bottom and subsequent improvement in the China and global growth prospects, the overall picture for the Singapore economy remains cautious,” she said.
Despite the doom and gloom, some economists are holding out for an upward revision - among them, Merrill Lynch’s Mohamed Faiz Nagutha, who cited an improving Purchasing Managers’ Index in March.
The advance GDP estimates are largely based on information from January and February, and can still be adjusted in the final print, which is scheduled to be released by May 24.
The Government has re-affirmed its previous growth forecast of between 1.5 per cent and 3.5 per cent for 2019, while leaning towards “slightly below the mid-point” of that range.
Separately, the International Monetary Fund downgraded its global growth outlook for the third time in six months on Tuesday, to a projected 3.3 per cent expansion of the world economy.