Singapore’s private sector grows modestly in January, outlook sentiment negative on slowing economic conditions

Singaporean economy’s PMI dropped to 51.6 in January from 52 in December. This is the slowest reading in three months and a decline from 52.5 one year ago. However, it remained above the 50.00 mark that distinguishes the expansion from contraction territory. Measures for both output and new orders dropped to their lowest since July 2016 and August 2016 respectively. This implies some slowdown in momentum in the first quarter of 2017, although order books were still expanding due to client demand.

The deceleration in new export orders was significant in January and is connected to weak demand from foreign nations like the EU and U.S. This is not entirely unexpected as the U.S. President Trump has implemented some of his controversial policies on TPP withdrawal, NAFTA renegotiation, immigration curbs etc. Certain domestic industries were badly impacted, especially real estate.

An important portion of the employment growing at the most rapid pace on record in January was probably because of the festive season adding to a rebound in labor demand and some of this temporary labor might unwind in the first half of 2017, stated Selena Ling, Head of Treasury Research & Strategy at OCBC Bank.

Increasing costs also led to a surge in cost burdens and the pace of prices charged by companies. This is expected to strengthen the positive headline inflation prints in the coming months. This is the first time in the history of survey that private sector businesses expressed negativity regarding the outlook because of decelerating economic conditions.

“While the 4Q16 and full-year 2016 GDP growth are likely to be revised up to 2.3 percent yoy and 2 percent yoy respectively, we maintain our cautious 2017 GDP growth forecast at 1-2 percent as services outlook remains soft, notwithstanding the recent green shoots in manufacturing and electronics sectors”, added Selena Ling.