Singapore GDP growth for 3Q15 likely to be flat while inflation remained stuck in negative

Singapore GDP growth for 3Q15 was probably flat while inflation has remained stuck in negative level. Headline GDP figures for 3Q15 are due tomorrow and a forecast of zero growth on a QoQ saar basis has been pencilled into the forecast. This is down a tad from the earlier advance estimation of 0.1% QoQ saar although on a year-on-year basis, it will remain unchanged at 1.4% YoY. 

While the economy has averted a technical recession, the uncertain global environment has continued to cast a gloomy outlook on the economy. In addition, while growth momentum has been slow amid the strong external headwinds, domestic restructuring is also posing a challenge for companies. The main disappointment stems from the manufacturing sector. A contraction of 6.2% YoY is expected compared to the advance projection of -6.0%. A worse than expected outcome in September industrial production is the main reason for the drag. 

Plainly, the manufacturing sector is in recession, having contracted in the past four quarters in year-on-year terms and in three out of the past five quarters on a sequential basis. Industrial output has also declined in ten out of the past twelve months and the near-term outlook doesn't seem to be improving given the weak external demand. The service sector will continue to grind along. Although it will help the economy avert a technical recession, it is also affected by the slump in the manufacturing sector. A domestic manpower crunch and heightened risks in the global environment have further weighed down on the performance of the sector. 

With zero growth in 3Q15, full year GDP is pretty much on track to meet the expectation of a 1.8% expansion. This will be the slowest growth in six years and risks remain in the horizon with potential capital flight that could result from higher US interest rates and / or fears of further deceleration in China. Separately, inflation has remained stuck in negative territory. Latest October CPI inflation registered a reading of -0.8% on the back of lower costs of housing & utilities and transport. The high base effect from energy prices is still being manifested in the headline number given the continued slump in oil prices. Earlier macro-prudential measures are also depressing rentals and home prices. In addition, slowdown in growth momentum is taking a toll on costs of domestic services (i.e. communication). 

Though outright deflation risk is still low, much depends on growth outlook and inflation expectation. The former remains dicey but the latter is unlikely to turn sharply negative for the near future. And the labour market is still holding up with low unemployment rate of about 2.0%. Core inflation will continue to stay above water and the negative headline CPI inflation will only last till 2Q16 before the base effect lapses. Overall inflation for 2016 is expected to average 0.5%.