GDP growth loses steam in the second quarter

According to a preliminary estimate, GDP growth ticked down slightly to 2.9% year on year in the second quarter, from 3.0% in the first quarter. That said, the expansion exceeded market expectations. On a seasonally adjusted quarter-on-quarter basis, economic growth accelerated to 0.4% in Q2, from the previous quarter's 0.3% expansion.

Looking at the details of the release, softening momentum in the services sector drove the downtick: The sector’s growth came in at 3.3% year on year in Q2, slowing from Q1’s 4.3%. The moderation was broad-based, with activity in the wholesale and retail trade, information and communication, and hospitality and real estate subsectors all expanding at weaker rates compared to Q1. More positively, the goods-producing industries rebounded by 1.3% yoy in Q2 (Q1: -0.7% yoy). Recovering manufacturing production—halting a two-quarter-long downturn—likely thanks to the global electronics sector upcycle largely fueled the improvement. Growth in the construction sector also strengthened.

United Overseas Bank analyst Jester Koh said: “Tight financial conditions stemming from elevated interest rates in the US/EU may temper the extent of improvement in externally-oriented sectors in the near-term although these sectors could stage a more meaningful recovery in 4Q24 should major central banks in advanced economies begin or continue to lower policy rates, which may stimulate investment and consumption activity abroad. The pace of growth in tourism-related sectors is likely to moderate as tailwinds from the post-pandemic pent-up demand for these services dissipate. Overall, we maintain our full-year GDP growth forecast at 2.9% for 2024 (2025F: 3.2%) which sits near the upper end of MTI’s official forecast range of 1.0-3.0%.”

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