MTI narrows GDP forecast for 2017; MAS keeps policy stance neutral

Singapore

SINGAPORE'S Ministry of Trade and Industry (MTI) narrowed its full-year gross domestic product (GDP) forecast upwards, reflecting a more confident stride amid an improving global and domestic environment and backed by a better-than-expected growth in the second quarter of 2017, led mainly by manufacturing.

However, the Monetary Authority of Singapore (MAS) kept its neutral monetary policy stance announced in April, saying that it remains appropriate in view of the stable growth and inflation prospects for this year.

The MAS's next policy decision is due in October.

MAS deputy managing director Jacqueline Loh said on Friday that the narrowing of the GDP forecast for 2017 - from an earlier estimate of 1-3 per cent to 2-3 per cent - is "within the planning parameters of the MAS's April 2017 monetary policy decision".

On Friday, MTI also disclosed that Singapore's GDP grew 2.9 per cent from the second quarter a year ago, faster than the previous quarter's 2.5 per cent growth. It was also revised upwards from the preliminary estimate of 2.5 per cent. Growth momentum picked up, as the economy expanded by a seasonally-adjusted annualised 2.2 per cent on a quarter-on-quarter basis, reversing a 2.1 per cent contraction in the previous quarter.

The manufacturing sector, which posted a 8.1 per cent growth in Q2 from a year ago, continues to drive growth, underpinned by the electronics and precision engineering clusters. The sector is likely to continue to support Singapore's growth in the second half of 2017.

Signs of growth broadening to the externally-oriented services sectors have emerged, but there is still some unevenness in the growth profile, said Loh Khum Yean, MTI's permanent secretary. Better growth translated into improved overall productivity, which jumped by 3.2 per cent in Q2. The manufacturing sector had the highest value-added per worker growth of 11.8 per cent, followed by wholesale and retail trade (2.6 per cent) and transportation and storage (1.9 per cent). Productivity of outward-oriented sectors grew by 5.2 per cent in Q2, higher than domestically-oriented sectors, which grew by 0.4 per cent.

The labour market remains weak. The drag in the manufacturing sector comes mainly from the still-weak marine and offshore segment. Total trade growth eased from 16.4 per cent to 9.5 per cent, based on the latest trade data by trade promotion agency International Enterprise (IE) Singapore. MTI noted that the outlook for the global economy has been stable in recent months, with global growth on track to come in higher this year than last year.

The US economy rebounded in Q2 and growth momentum is expected to be sustained in H2 2017. The eurozone economy is expected to remain stable and to continue to grow at a modest pace for the rest of 2017. The Chinese economy is projected to ease slightly in H2, following stronger-than-expected growth in H1 2017.

But downside risks such as increased protectionism, a quicker-than-expected monetary policy normalisation and steeper-than-intended pullback of credit in China, remain.

Still, the potential for these risks to have a significant impact on global growth in 2017 has eased, compared to three months ago.

Economists expect MAS to keep its policy setting unchanged in October.

OCBC Bank economist Selena Ling said: "While global growth prospects are gaining momentum, there is still considerable uncertainty about the inflation story, given that crude oil prices remain subdued and the domestic labour market conditions are not red-hot. Concerns over the recent pick-up in interest in the domestic private property market could also be nipped by macro-prudential measures if needed."

Credit Suisse economist Michael Wan said he expects the mix of growth to shift towards domestic-oriented sectors, in particular private consumption, and away from exports.

Bank of America Merrill Lynch economist Mohamed Faiz Nagutha said this was the first time since 2013 that the centre of the GDP growth forecast range has been moved higher at this juncture. In light of the latest data, several economists have revised their GDP growth forecasts upwards.