Singapore: Economic growth accelerates in Q3, beating market expectations
October 13, 2017
Economic growth accelerated in Q3, on the back of a surge in manufacturing activity. According to advance estimates released by the Ministry of Trade and Industry on 13 October, which are based largely on data from the first two months of the quarter, GDP grew 6.3% quarter-on-quarter in Q3 at a seasonally-adjusted annualized rate (SAAR), more than double Q2’s revised 2.4% expansion (previously reported: +2.2% quarter-on-quarter SAAR). The result represents the strongest reading since Q1 2010 and comfortably beat market expectations.
The acceleration was led by an outstanding quarter for the manufacturing sector. Manufacturing expanded 23.1% quarter-on-quarter SAAR, significantly above Q2’s 3.2% increase. The service sector, which accounts for about two-thirds of the economy, grew a mild 1.5% qoq SAAR in the third quarter of the year, following the previous quarter’s 3.3% uptick. Lastly, the construction sector swung from a 2.4% qoq SAAR expansion in Q2 to a sharp 9.2% contraction in Q3.
In year-on-year terms, GDP expanded 4.6% in Q3, gaining considerable steam from Q2 (+2.9% year-on-year). Annual growth came on the back of a 15.5% expansion in the manufacturing sector (Q2: +8.2% yoy), led by growth in the electronics, biomedical manufacturing and precision engineering clusters. The expansion in manufacturing benefited from the upturn in the global electronics cycle, reflected in strong figures for both industrial production and exports, which expanded at a remarkable pace in the first two months of Q3. Growth in the service sector inched up slightly to 2.6% in Q3 (Q2: 2.5% yoy). Stronger external demand contributed to the slight acceleration, once again benefiting the transportation and storage sub-sector; the finance and insurance, and wholesale and retail sub-sectors also contributed to the result.
On the downside, the construction sector contracted for the third consecutive quarter in Q3 by 6.3% in annual terms, which represents a slight improvement from Q2’s 6.8% decline. The correction in property prices, which began after the peak in 2013, continued to weigh on private sector construction activities, negatively affecting the overall performance of the construction sector.
As in the previous quarter, GDP data showed the picture of a split economy, in which the export-oriented sectors continued to benefit from recovering global trade and the strong upturn in electronics production underway since Q4 2016, while sluggish internal conditions held back the more domestic-focused industries.
Momentum will likely moderate heading into 2018, as demand from China is expected to cool and weak construction activity weighs on domestic demand. Both household spending and fixed investment should pick up the slack in 2018, to a limited extent. Nevertheless, Singapore’s effective institutional structure, low tax burden and transparent governance provides the necessary flexibility to adapt to a rapidly changing economic environment.