Jul 12, 2014

Singapore - Economists hopeful of pickup in manufacturing in Q3

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Sluggish factory output likely weighed on Singapore's economic growth in the April to June period, but economists are hopeful of a pickup in the manufacturing sector later this year.

In contrast, the services sector - which propped up the economy in the second quarter - could turn more lethargic as the labour crunch continues to bite.

Overall, economists expect the economy to have expanded about 2 per cent to 3 per cent in the second quarter compared with a year ago, they told The Straits Times.

Compared with the January to March period, this translates into either a small contraction or growth of up to 2.9 per cent. Official flash estimates on second-quarter economic growth are due out on Monday.

Economists agreed that the figures would mark a slowdown from the first quarter, when the economy grew 4.9 per cent over the previous year, and 2.3 per cent over the preceding quarter.

But they are holding on to their forecasts of about 3.5 per cent growth for the full year, in the hope that the improving global economy will finally work its magic on Singapore. The government expects the economy to grow 2 per cent to 4 per cent this year.

"The performance of manufacturing has been below expectations in the second quarter, but we are hopeful of a stronger third quarter, led by a stronger technology supply chain in North Asia and a marginally stronger Chinese economy," said Barclays economist Leong Wai Ho.

UOB economist Francis Tan said the manufacturing sector, which accounts for about a fifth of Singapore's economy, likely grew just 1.8 per cent in the second quarter over a year ago - down from a 9.8 per cent expansion in the first quarter.

He has lowered his tip for overall economic growth in the second quarter to 3.1 per cent, from a 3.8 per cent estimate earlier this year.

Some parts of the services sector, which makes up two-thirds of the economy, would have pulled up growth, said CIMB economist Song Seng Wun, citing the logistics segment in particular.

But he also warned of lower activity in areas such as tourism, property, hotels and restaurants.

More Chinese tourists are shunning Southeast Asian holidays and the weak rupiah has made it more expensive for Indonesians to travel here, noted Leong.

Some economists also see more persistent problems in Singapore's economy as a result of the ongoing restructuring drive that has led to a labour shortage.

The restructuring has been blamed for Singapore's dismal showing in manufacturing and exports in the past few months, and there are signs that the malaise is spreading to services firms, especially those in wholesale trade, retail and financial services.

"We are concerned that restructuring will negate the lift from stronger global and US growth in the second half (of the year)," said Bank of America Merrill Lynch economist Chua Hak Bin. "Singapore is less able and flexible to capitalise on global upswings compared to the past."

DBS economist Irvin Seah pointed to "the persistent weakness in the services sector" as the biggest threat to Singapore's economy this year. If the sector continues to lose steam, it would "pose a threat to the medium-term prospects of the economy given its relatively large contributions to GDP and employment", he said.

Other potential risks include financial market reactions to anticipated hikes in United States interest rates next year, as well as "nascent" inflationary expectations that may grow later this year, said OCBC economist Selena Ling.

Fiona Chan

Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

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