Singapore Q3 GDP figures likely to disappoint following weakness in manufacturing sector

The third quarter gross domestic product in Singapore is expected to disappoint, following weakness in the country’s manufacturing sector, posing downside risks to the economic and financial growth of the nation.

The headline GDP number is expected to report a decline of 0.5 percent q/q, at a seasonally adjusted annual rate (saar). This will be down from a modest expansion of 0.3  percentin the previous quarter. In addition, the year-on-year growth is likely to dip to 1.5 percent y/y, from 2.1 percent in 2Q16, DBS reported.

The weak performance will be broad-based with the manufacturing sector expected to fall back into contraction and the services sector still struggling. Indeed, the main drag thus far has been the services sector. The sector has registered two consecutive quarters of q/q saar contraction, which means that it is “technically” already in a recession. Services sector accounts for slightly more than two-thirds of GDP and employment. So literally, two-thirds of the economy is already in a technical recession given the services’ slump.

Separately, the manufacturing sector is unlikely to pick up the slack from services. The former grew an average of just 0.3 percent y/y during the first half of this year. And that paltry pace of expansion was largely driven by the biomedical cluster. Given the volatile nature of the biomedical cluster, as well as the fact that it has little positive spin-offs to the rest of the economy, outlook for the overall manufacturing sector remains dicey.

In fact, the manufacturing sector recorded a contraction of 1.7 percent y/y on average between July-August. An expansion of more than 3.4 percent in industrial output for September is required to keep the sector in positive growth territory in the third quarter.

With growth outlook likely to remain dim, there will be expectation that policies may become more accommodative. However, the MAS had already eased the exchange rate policy to a zero appreciation of the Sing NEER in April, from a modest appreciation stance previously. And this was despite the fact that the headline GDP figures did not show a contraction in the economy then.