Singaporean Q2 GDP growth upwardly revised to 3.9 pct, MPS likely to tighten monetary policy in October

The second quarter economic growth of Singapore was upwardly revised a bit to 3.9 percent on a year-on-year basis, from the flash estimate of 3.8 percent. This is below market expectations of 4.1 percent. However, the first quarter growth was upwardly revised to 4.5 percent year-on-year, mainly due to the manufacturing growth being upwardly revised to 10.8 percent. This lifted the first half 2017 GDP growth to 4.2 percent, as compared with 2.7 percent seen in the first half of 2017.

The headline growth was mainly driven by manufacturing that rose 10.2 percent year-on-year, rising for the second straight quarter. Services output rose 2.8 percent year-on-year, this was lower than the earlier 3.4 percent estimate and also a moderation from the 4 percent year-on-year seen in the first quarter of 2018.

Markedly, the finance & insurance and information & communications sectors recorded rise of 6.7 percent 5.2 percent year-on-year respectively in the second quarter 2018, whilst accommodation & food services sector grew 4 percent year-on-year, double that in the first quarter 2018, amidst higher gross lettings at gazette hotels consistent with the visitor arrival rebound. But other services industries lagged – wholesale & retail trade cluster rose 1.5 percent year-on-year and the transport & storage cluster rose 1.3 percent. Construction fell 4.6 percent in the second quarter, albeit this was a small rebound from the 5.2 percent year-on-year contraction in the first quarter of 2018, as public sector construction work stays weak, and the recent private residential property easing measures are likely to be a drag going forward, noted Selena Ling, Head of Treasury Research & Strategy, OCBC Bank.

MTI kept its 2018 full-year growth forecast unchanged at 2.5 to 3.5 percent. This is expected as firs half growth already surpassed 4 percent year-on-year. MTI also repeated that growth would carry on to be underpinned mainly by outward-oriented sectors, namely the manufacturing sector, underpinned by electronics, as well as outward-oriented sectors such as finance & insurance, wholesale trade and transportation & storage, although it might moderate from the levels seen in the first half of this year.

“The option for a further gradual tightening of monetary policy at the October MPS remains on the table in our view, given that domestic core inflation is likely to cross the 2 percent yoy handle as early as August, and even if 2H18 GDP growth essentially halves from its 1H18 pace, our full-year growth forecast of 3 percent yoy remains intact”, added Selena Ling.