Singapore: Economy jumps in Q4
January 20, 2017
Singapore’s economy surprised to the upside in the final quarter of 2016 and managed to avoid a technical recession, benefiting from slowing external headwinds. According to advanced estimates released by the Ministry of Trade and Industry on 3 January, GDP expanded an outstanding 9.1% in Q4 from the previous quarter at a seasonally adjusted annualized rate (SAAR), contrasting Q3’s revised 1.9% drop (previously reported: -2.0% quarter-on-quarter) and marking the best result since Q2 2013. The result was the best in three-and-a-half years and greatly overshot market expectations of a 3.7% expansion. In year-on-year terms, GDP expanded 1.8% in Q4, which was a substantial acceleration from Q3’s revised 1.2% growth (previously reported: +1.1% year-on-year). The final quarter’s positive result brought full-year 2016 GDP growth to 1.8%, the weakest result in seven years but nevertheless higher than expected by the markets.
The turnaround came on the back of a broad-based improvement in all the sectors of the economy, with the manufacturing sector growing the most. Manufacturing expanded 14.6% qoq SAAR in a drastic reversal from Q3’s sharp 8.1% fall, with the electronics and biomedical manufacturing clusters leading the recovery. The rebound in manufacturing was underpinned by improving external demand and was reflected in the positive PMI readings in the last months of last year. Similarly, the services sector expanded a two-year high of 9.4%, contrasting the soft decline recorded in Q3. The transportation and storage and business services sectors drove the improvement, likely benefiting from the recovery of re-exports. On the contrary, the construction sector remained weak, although the contraction softened significantly from the previous quarter. The sector continues to suffer from an unresolved weakness in the property market, which stems from the continued fall in house prices and high levels of household indebtedness.
The improvement in the country’s GDP growth is encouraging news for Singapore’s economy, however, the country’s outlook for 2017 remains relatively weak. Although the country continues to benefit from important structural strengths, such as a highly transparent regulatory environment, a low tax burden and a flexible and strongly market-oriented economy, it also suffers from unresolved weaknesses which limit its growth potential. A tight labor market, restrictive immigration policies and slow productivity growth count among the major challenges faced by the country. In addition, heightened financial market volatility and a possible shift towards protectionism by the new U.S. administration could be especially painful for Singapore’s highly open economy.
Against this backdrop, Weiwen Ng, economist at ANZ, is cautious about Singapore’s growth outlook:
“Singapore has comfortably dodged a technical recession in Q4 2016, but we expect the local economy to remain in ‘slow-mo’. For the whole of 2017, we expect GDP growth to ease to 1.4% from 1.8% in 2016, which places our estimates at the lower end of the government’s 1-3% forecast range.”