Singapore’s Q4 2015 GDP growth revised upwards, economy likely to slow down in 2016

Singapore's Q4 GDP growth is upwardly revised to 6.2% q/q saar, as compared with the initial estimate of 5.7% and consensus expectations of 4.5%. The growth was driven by slight firming of services momentum, with services output growing by 7.7% q/q saar, as compared with the earlier estimate of 6.5% q/q saar.

However, on a yearly basis, services growth was slower in the final release. The strength in services was centred on financial services and wholesale/retail trade. The expansion from services countered the downwardly revision to manufacturing that declined 4.9% q/q saar, as compared with the initial estimate of a drop of 3.1%. This reflects the deepening weakness in manufacturing.

"There is no change to our 2015 growth forecast at 2.0% y/y. However, given that we believe the loss of momentum in the manufacturing sector is likely to deepen in Q1 amid weaker growth in the services economy, we lower our forecast for 2016 to 1.5% (earlier: 2.5%) - at the lower end of the official forecast range of 1-3%".

This is majorly triggered by a downwardly revision to the growth momentum of Q1 to a small contraction of 0.5%, as compared with  the earlier estimate of a growth of 2.8% q/q saar, as producer sentiment in the region indicates no sign of bottoming out. The MTI stated cautions regarding the easing of global growth since the beginning of 2016 and rising downside risks to the global economy. The MTI also projects that the manufacturing activity will continue to be weak.

However, there is likelihood of more weakness in two areas of services - tourism-related services and sentiment-sensitive activity. According to recent retail sales reports, there is a gradual slowdown in discretionary spending on non-auto big ticket items. This probably suggests the rising worry regarding the weak growth outlook and also job prospects. Wholesale trade, finance and insurance are expected to continue to outperform. MTI projects growth to rebound with the help of advanced economies, but later in the year.

With the rise in public concern regarding the near-term outlook, there is likelihood for the policy to slightly shift towards giving short-term pain relief. This indicates additional measures for small businesses and households in Budget 2016. This also might mean an increasing expectation of additional easing in monetary policy.