Singapore: Economic growth decelerates in Q4, broadly in line with market expectations
Economic growth decelerated in Q4, weighed down by a contraction in the manufacturing sector, according to an advance estimate released by the Ministry of Trade and Industry on 2 January, which is based largely on data from the first two months of the quarter. GDP grew 2.8% quarter-on-quarter in Q4 at a seasonally-adjusted annualized rate (SAAR), down sharply from Q3’s 9.4% jump. The result was broadly in line with market expectations of 2.9% qoq SAAR growth.
The deceleration was led by a weak quarter for the volatile manufacturing sector. Manufacturing contracted 11.5% qoq SAAR, strongly contrasting Q3’s 38.0% surge. On the other hand, the services sector, which accounts for about two-thirds of the economy, expanded a strong 7.5% qoq SAAR in the fourth quarter of the year, more than doubling the previous quarter’s 3.4% growth. Lastly, the contraction in the construction sector eased from 5.5% in Q3 to 3.6% in Q4.
In year-on-year terms, GDP expanded 3.1% in Q4, losing steam from Q3 (+5.4% year-on-year). Growth came on the back of a 6.2% expansion in the manufacturing sector (Q3: +19.2% yoy), led by growth in the electronics and precision engineering clusters, which more than offset a contraction in the biomedical manufacturing and transport engineering clusters. The expansion in manufacturing benefited from solid global demand for electronics. This was reflected in strong figures for both industrial production and exports in the first two months of Q4. Growth in the service sector remained solid, coming in at 3.0% in Q4 (Q3: +3.2% yoy). Robust external demand also supported the sector.
On the downside, the construction sector shrank for a fourth consecutive quarter in Q4, by 8.5% in annual terms, a further deterioration from Q3’s 7.7% decline. The unwinding of the large real estate stock continued to weigh on construction activity in the private sector.
GDP data continued to show the picture of a split economy, in which export-oriented sectors benefited from solid global trade, albeit to a lesser extent than in the previous quarter, and the ongoing correction in the construction sector again restrained growth. Momentum will likely moderate in 2018 due to cooling demand from China and weak construction activity. However, fixed investment should to a certain degree rebound in 2018, helped by government measures to support businesses and investment, as well as by increased infrastructure spending. Overall, Singapore’s solid fiscal and external positions, low tax burden and competent governance guarantee strong fundamentals and provide the necessary flexibility to adapt to a rapidly changing economic environment.