Singapore: New estimates reduce the magnitude of sequential contraction in Q1
May 26, 2017
Revised data released by the Ministry of Trade and Industry on 25 May reduced the magnitude of the contraction of Singapore’s economy in the first quarter of 2017—a result 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 revised estimates, GDP declined 1.3% in Q1 from the previous quarter at a seasonally adjusted annualized rate (SAAR) (previously reported: -1.9% quarter-on-quarter SAAR), strongly contrasting Q4’s 12.3% growth and marking the worst result since Q1 2015.
The downturn came on the back of a deterioration in both the manufacturing and service sectors. The most significant quarter-on-quarter (qoq) revision concerned the manufacturing sector, which according to revised data contracted 1.5% qoq (previously reported: -6.6% qoq), a reversal from Q4’s sky-high 39.8% expansion. The service sector contracted 2.1% 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 4.3% 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 2.7% in Q1 (previously reported: +2.5% yoy), a slight deceleration from Q4’s 2.9% growth. Growth came on the back of an 8.0% yoy 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 for semiconductors 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 1.6% in Q1. Stronger external demand contributed to the slight acceleration, benefiting the transportations and storage and business services sub-sectors. Looking at the broad economic picture, the Singaporean economy continued to benefit from the first quarter’s recovery in exports, while the more domestic-focused industries remained weak, as witnessed by the third consecutive quarter of contraction in the construction industry.
Following the quarter-on-quarter contraction, Singapore should return to growth and expand moderately going forward, although incipient signs of weakness in external demand, especially from China, suggest that downside risks persist. Nevertheless, 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 weaknesses 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.