Singapore: Economy contracts in Q1
April 20, 2017
Singapore’s economy returned to contraction in the first quarter of 2017, although the result was strongly influenced by base effects as a result of Q4’s impressive expansion, and by the traditional volatility of the country’s GDP figures. According to advanced estimates released by the Ministry of Trade and Industry on 13 April, GDP declined 1.9% in Q1 from the previous quarter at a seasonally adjusted annualized rate (SAAR), strongly contrasting Q4’s 12.3% growth and marking the worst result since Q3 2012. The result matched market expectations.
The downturn came on the back of a deterioration in both the manufacturing and the services sectors. Manufacturing contracted 6.6% quarter-on-quarter (qoq) SAAR, in a reversal from Q4’s sky-high 39.8% expansion. The service sector contracted 2.2% qoq in the first quarter of the year, contrasting the previous quarter’s strong 8.4% expansion. In contrast, the construction sector strengthened in qoq terms, growing 5.4% in Q1, following the softer 0.8% expansion recorded in Q4.
However, the economy performed more robustly on a year-on-year (yoy) basis. In yoy terms, GDP expanded 2.5% in Q1, a slight deceleration from Q4’s 2.9% growth. Growth came on the back of a 6.6% yearly expansion in the manufacturing sector (Q4: +11.5% yoy), led by an expansion in the electronics and precision engineering clusters. The rebound in manufacturing was underpinned by strong external demand and was reflected in the positive PMI readings in the first months of this year. On a yoy basis, growth in the service sector accelerated from Q4’s 1.0% to 1.5% in Q1. Stronger external demand contributed to the slight acceleration, benefiting the wholesale and retail trade and transportations and storage sub-sectors. Looking at the broad economic picture, the Singaporean economy continued to benefit from the recent recovery in exports, while the more domestic-focused industries remained weak.
Despite the quarter-on-quarter contraction, Singapore’s economy is set to benefit from the ongoing recovery in external demand, especially from China. The country’s highly transparent regulatory environment, low tax burden and flexible and strongly market-oriented economy will continue to underpin the recovery. On the downside, a tight labor market, unresolved weakness in the property market and slow productivity gains limit the country’s growth potential, while its high exposure to foreign markets could result in a sudden worsening of economic conditions if a rise in global protectionism materializes.