July 14, 2017 5:11 pm JST

Singapore economy grows below expectations in 2Q, outlook for the year holds

SINGAPORE (Nikkei Markets) -- Manufacturing in Singapore grew at a slower pace in the second quarter, restraining gross domestic product growth and underlining concerns that the main economic engine may be losing some steam.

Elsewhere, construction continued to shrink while services showed improvement. The outlook for the year is mostly intact although the risks may be tilting to the downside, many economists said, noting that Friday's figures were below expectations.

Overall, GDP grew 2.5% year-on-year in the quarter ended June, the Ministry of Trade and Industry said in its advance estimate released Friday. The figure was weaker than the 2.8% median estimate of economists surveyed by Reuters.

On a quarter-on-quarter, seasonally adjusted annualized basis, GDP grew 0.4% during the April to June period, reversing from the 1.9% contraction in the first quarter and helping the economy avoid a technical recession.

The advance estimates are based primarily on data for the first two months of the quarter and aim to provide an early indication of the economy's performance during the period. The figures may be revised. Singapore had earlier reported growth of 2.7% on year in the first quarter, but this was revised downwards to 2.5% in Friday's report.

Singapore has said it expects GDP to grow by more than 2% this year, a prediction that puts the city-state on course for its fastest expansion in three years.

In June, the Monetary Authority of Singapore's quarterly survey of professional forecasters showed the domestic economy would likely grow 2.5% this year, higher than the median forecast of 2.3% made in the previous survey as well as the 2% growth recorded in 2016.

Singapore's economy roared to life in the last quarter of 2016 powered by strong growth in electronics and precision engineering, after two lackluster years when the slowdown in global trade and weakness in energy prices hurt its large offshore and marine sector.

However, several economists have noted that while industry clusters such as semiconductors and logistics have sparkled in the past two quarters, the rest of the economy is yet to benefit while the labor market has also remained soft.

Despite a slowdown, manufacturing, which accounts for about 20% of GDP and around 14% of employment in the city-state, remained the star performer in the second quarter. The sector expanded 8% on-year, slower than the 8.5% achieved in the first three months of the year. The growth was led by electronics and precision engineering, which benefited from increased demand for semiconductor manufacturing equipment.

"The disappointment in the GDP data was predominantly in the manufacturing sector," said Sanjay Mathur, chief economist, Southeast Asia and India at ANZ Research. While still solid, the growth was short of estimates and at odds with the strength of the sector seen in other export-oriented economies in the region, Mathur said.

The electronics rally is showing some signs of lethargy of late, DBS Group Research said in a note. "The PMIs and semiconductor billings, and shipments data are hinting of some side-way moves in the broader manufacturing output trend."

Looking ahead, the question is whether the uptick in the services sector is sustained so that it plugs the gap left by the manufacturing sector, which is expected to slow in the second half, Singapore's United Overseas Bank said in a note. UOB is maintaining its full-year GDP growth forecast of 2.4%.

The services sector, which accounts for a large part of economic output, grew 1.7% in the latest period, faster than the 1.4% it managed during the first quarter. MTI attributed this to growth in the transportation and storage and business services segments. Meanwhile construction contracted by 5.6% from a year ago, slower than the 6.1% decline in the preceding period, damped by weaker activity in both the private and the public sector.

DBS expects the service sector figure to be revised up. "Loan growth, container throughput and re-exports figures are all trending higher," and as the sector accounts for two-thirds of the economy, an uptick in it would lift overall growth, DBS said in the report. While it still expects GDP growth for the year at 2.8%, DBS said there is increasing downside risk to the forecast.

--Kevin Lim

Asia300

United Overseas Bank Ltd. (Singapore)

Singapore

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