Singapore surprised on the upside with a 1.9% (QoQ saar) expansion in 3Q

The Singapore economy surprised on the upside with a 1.9% (QoQ saar) expansion in the third quarter (see Table). This translates into a 1.9% YoY growth. The final outcome not only beats the most optimistic forecast in the market but also implies that the economy has cruised past the fate of a technical recession in the third quarter despite the uncertain global environment.

The services sector was the main driver in the third quarter. Growth came in at 3.6% YoY, significantly stronger than the 3.0% projected in the advance GDP estimates. Note this sector accounts for about two-third of the economy. A good showing from this sector will lift the boat. However, a domestic manpower crunch and uncertainties in the global environment will continue to cast a shadow on the performance of the sector going forward.

Unsurprisingly, the main drag came from the manufacturing sector. A contraction of 6.2% YoY was reported, compared to the advance projection of -6.0%. A worse than expected outcome in September industrial production was the main reason. 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 Ministry of Trade and Industry (MTI) now expect GDP growth to come in at "close to 2.0%" for the full year. This is pretty much in line with our expectation of a 1.8% expansion. Nonetheless, 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. 

Going forward, growth outlook in the next 6-9 months will remain tepid before an improvement in 2H16 can be expected. This should bring overall GDP growth for 2016 to 2.1%. Note the government now expect GDP growth for 2016 to come in between 1-3%