Singapore economy ended 2015 on a high note

The economy ended 2015 on a high note. GDP growth in 4Q15 was stronger than expected. Based on the advance GDP estimates released today, the economy is projected to have expanded by 5.7% QoQ saar in 4Q1. This translated into a 2.0% YoY growth. For the full year, the economy grew by 2.1%. 

Once again, the service sector is in the driving seat. Growth is expected to register a solid 6.5% QoQ saar (3.2% YoY). Note this sector accounts for about two-third of the economy. A good showing from this sector will lift the boat. However, while this sector is known to be a resilient and stable engine of growth for Singapore, performance of the sector going forward will continue to be affected by the existing domestic manpower crunch and drag from the manufacturing sector. 

Unsurprisingly, the manufacturing sector remains the weakest link. A contraction of 3.1% QoQ saar (-6.0 YoY) was reported. The manufacturing sector is in recession, having contracted in the past five quarters in year-on-year terms. Industrial output has also declined in eleven of the past twelve months. 

Both cyclical and structural challenges are dampening the growth prospects of this sector. External competition, rising business costs and weak external demand were the key challenges facing this sector for the past years. And the outlook is expected to remain dicey judging from conditions in the external environment. 

Although the economy has ended 2015 with a fairly healthy growth pace in the fourth quarter, overall GDP growth is still the slowest in six years. Moreover, risks remain in the horizon with potential capital flight that could result from further US rate hikes and / or fears of further deceleration in China. Going forward, growth outlook in the next 6-9 months will remain tepid before an improvement in the later part of 2016 can be expected. This should bring overall GDP growth for 2016 to 2.1%.