Singapore: Economic growth accelerates in Q3, comfortably beating market expectations
November 23, 2017
Economic growth accelerated in Q3, on the back of a surge in manufacturing activity. According to revised estimates released by the Ministry of Trade and Industry on 23 November, GDP grew a revised 8.8% quarter-on-quarter in Q3 at a seasonally-adjusted annualized rate (SAAR) (previously reported: +6.3% quarter-on-quarter SAAR), quadrupling Q2’s revised 2.2% expansion (previously reported: +2.4% qoq SAAR). The result represents the strongest reading since Q4 2016 and comfortably beat market expectations.
The acceleration was led by an impressive quarter for the manufacturing sector. Manufacturing surged 34.6% quarter-on-quarter SAAR, significantly above Q2’s 4.0% increase. The service sector, which accounts for about two-thirds of the economy, grew a healthy 3.2% qoq SAAR in the third quarter of the year, slowing only marginally from the previous quarter’s 3.4% uptick. Lastly, the construction sector contracted 5.3% qoq SAAR in Q3, a softer contraction compared to Q2’s 6.9% fall.
In year-on-year terms, GDP expanded a revised 5.2% in Q3 (previously reported: +4.6% year-on-year), gaining considerable steam from Q2 (+2.9% yoy). Annual growth came on the back of an 18.4% expansion in the manufacturing sector (Q2: +8.4% 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 throughout the quarter. Growth in the service sector edged up to 3.0% in Q3 (Q2: 2.5% yoy). Stronger external demand contributed to the acceleration.
On the downside, the construction sector contracted for the third consecutive quarter in Q3. It shrunk 7.6% in annual terms, a slight improvement from Q2’s 9.1% 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 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 is expected to weigh on domestic demand. 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.