Singapore: Economy rebounds in Q2 but falls short of market expectations
July 14, 2017
Singapore’s economy returned to growth in the second quarter of 2017, mainly on the back of greater manufacturing activity. The result followed a contraction in Q1 which was largely 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 14 July, GDP expanded 0.4% in Q2 from the previous quarter at a seasonally adjusted annualized rate (SAAR), contrasting Q1’s revised 1.9% contraction (previously reported: -1.3% qoq SAAR) but falling short of market expectations.
The rebound came on the back of an acceleration in the manufacturing sector and turnarounds in the construction and services sectors. Manufacturing expanded 2.4% quarter-on-quarter (qoq) SAAR, up from Q1’s mild 0.4% increase. The service sector grew 0.4% qoq in the second quarter of the year, contrasting the previous quarter’s 2.7% contraction. Lastly, the construction sector also rebounded in qoq terms, growing 4.3% in Q2, following the sharp 14.4% contraction recorded in Q1.
In year-on-year terms, GDP expanded 2.5% in Q2, matching Q1’s revised 2.5% growth (previously reported: +2.7% year-on-year) and the Focus Economics Consensus Forecast. Growth came on the back of an 8.0% expansion in the manufacturing sector (Q1: +8.5% yoy), led by growth in the electronics and precision engineering clusters. The expansion in manufacturing, as in the prior quarter, was underpinned by strong external demand for semiconductors and was reflected by encouraging figures for industrial production, which expanded for the tenth consecutive month in May. On a year-on-year basis, growth in the service sector accelerated from Q1’s 1.4% to 1.7% in Q2. Stronger external demand contributed to the slight acceleration, benefiting the transportation and storage and business services sub-sectors. On the downside, the construction sector continued to contract in annual terms in Q2 and decreased 5.6%, which represents a slight improvement from Q1’s 6.1% contraction. Weakness in both private and public sector construction activities weighed on the negative performance of the construction sector, which is still suffering the consequences of the correction in property prices which started after the peak reached in 2013 and is only gradually showing signs of softening. Looking at the broad economic picture, the Singaporean economy continued to benefit from the recent improvement in global trade and the strong expansion in electronics production underway since Q4 2016, while the more domestic-focused industries remained affected by sluggish conditions at home.
Singapore’s economic growth will likely remain tepid going forward, benefiting from the ongoing recovery in the external sector but suffering from weak domestic demand. The country’s efficient infrastructure, highly transparent regulatory environment, low tax burden and stable governance make the economy highly dynamic and resilient. Nevertheless, deteriorating labor market conditions, the ongoing weakness in the property market and slow productivity gains are weighing on household spending, while low oil prices and rising interest rates in the U.S. pose downward risks to the outlook.