MTI hints at a higher floor for Singapore's 2017 growth

Singapore

SINGAPORE'S economy this year is likely to clock its fastest growth rate in three years as global growth strengthens considerably, according to gross domestic product (GDP) growth data released by the city-state's Ministry of Trade and Industry (MTI) on Thursday.

Economists, on the other hand, are sounding the alarm. They say that first-quarter growth is the fastest that one will see this year, and it will only go downhill from here.

Said Francis Tan, UOB economist: "We believe that the 2.7 per cent year-on-year growth in Q1 2017 could be the peak on-year growth rate for 2017, and that growth rates in the next three quarters will be lower."

MTI sounded a more upbeat tone in Thursday's fuller Q1 GDP estimates. Though it said that it is maintaining the earlier growth forecast for 2017 at 1 to 3 per cent, it also hinted that growth is "likely to come in higher than the 2 per cent in 2016."

"This is in line with our assessment of the global growth outlook, as well as the performance of the economy in the first quarter," said Loh Khum Yean, MTI's permanent secretary, at a press conference.

Having MTI say in its Q1 data release that it will maintain that given year's forecast range is to be understood; one quarter's worth of data is likely to be insufficient to make an informed decision.

But to have MTI hint at a new range for full-year growth based on first-quarter data, like it did on Thursday, is something it has not done so in recent years.

The last time MTI revised full-year growth forecast based on Q1 data was in 2011, when it lifted the range. 2011's first quarter reported a strong 9.2 per cent year-on-year growth, Bloomberg data show.

If MTI's prediction of 2017 growth coming in above 2 per cent rings true, this would mean that this year's growth beats last year's and 2015's growth, which were both at 2 per cent. Growth was at 2.9 per cent in 2014.

To be sure, economists have already anticipated MTI's cautious optimism. After Thursday's release, most of them did not budge from their earlier full-year forecasts.

MTI's Q1 2017 fuller estimates were led by a stronger global outlook.

Q1 growth was lifted to 2.7 per cent year-on-year, from a previous flash estimate of 2.5 per cent. This comes as the external-facing manufacturing sector, led by electronics and precision engineering output, reported an 8 per cent growth.

Notably, trade promotion agency International Enterprise (IE) Singapore on Thursday upgraded its non-oil domestic export (NODX) growth forecast for 2017 considerably. It was previously at 0 to 2 per cent, now it's lifted to 4 to 6 per cent.

This brighter external outlook results from an expected stronger pace of growth in the United States and key Asean economies.

One possible upset for global growth emerged on Wednesday as ratings agency Moody's downgraded China's credit rating, casting doubts on its growth trajectory.

On Thursday, Singapore central bank's chief economist Edward Robinson assured that "stability in (China's) growth is the most likely outcome", with Singapore's baseline view of China's growth this year remaining at around 6.5 per cent.

However, MTI still flagged some external risks that may drag on Singapore's growth. It said that a tightening of monetary conditions in China may still affect Singapore. Global trade may be adversely impacted as the United Kingdom starts talks with the European Union on its withdrawal. Policy uncertainty from the United States is another concern.

Yet, it was the domestic-facing sectors that caught most of MTI's and economists' concern. They worry that they may upset Singapore's growth trajectory. Said Irvin Seah, DBS economist: "Plainly, there are structural challenges weighing down on the domestic sectors and the doldrums is unlikely to dissipate in the near term."

The construction sector was still in the doldrums on a year-on-year basis. Even though the government has committed to speeding up public construction projects, "public expenditure alone will not be enough to lift GDP sustainably higher," said Vaninder Singh, NatWest Markets economist.

Developments in the labour market also worried economists, as MTI noted that sluggish conditions can cause consumers to be more cautious. "We need to watch how these other sectors continue to perform over the coming months ... before we consider whether to adjust the forecast range," said MTI's Mr Loh.

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