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Q4 advance growth figure brings some cheer

2% expansion beats economists' average forecast, brings S'pore's full-year growth to 2.1%; but hurdles remain for key manufacturing, services sectors

The Singapore economy seems to have headed for a sweet denouement in an otherwise dreary 2015, but observers are not popping the champagne yet.


THE Singapore economy seems to have headed for a sweet denouement in an otherwise dreary 2015, but observers are not popping the champagne yet.

Two separate sets of data released on Monday showed an uptick in economic performance as 2015 drew to a close.

The economy's expansion accelerated in the fourth quarter of 2015, beating market forecasts.

Advance estimates released on Monday by the Ministry of Trade and Industry (MTI) showed that it grew 5.7 per cent on a seasonally adjusted and annualised basis from the third quarter, which grew 1.7 per cent. The services-producing and construction sectors propelled much of the growth.

In year-on-year terms, the economy grew 2 per cent in the fourth quarter, as compared to the preceding quarter's 1.8 per cent.

This strong showing in the fourth quarter brought 2015 to a full-year 2.1 per cent growth.

These estimates were computed based on October and November data.

In a possible sign of how things may turn out, the manufacturing sector separately logged a fourth straight month of better performance in December.

The latest purchasing managers' index (PMI), released on Monday by the Singapore Institute of Purchasing and Materials Management (SIPMM), showed that the December reading for manufacturing reached 49.5. An overall reading above 50 signals expansion, and below 50, contraction.

The better economic performance underscored by Monday's data certainly took the market by surprise. An earlier poll of 11 economists by Reuters showed that the median forecast for growth in the fourth quarter was at a year-on-year 1.3 per cent.

As for full-year growth, the majority of the 22 economists polled previously by the Monetary Authority of Singapore (MAS) estimated that growth should come in at about 1.9 per cent for 2015.

But though the better performance did take observers by surprise, they were hesitant to celebrate.

The main drag on growth for 2015 was the manufacturing sector, which contracted in the fourth quarter at an annualised 3.1 per cent from the previous quarter.

In year-on-year terms, it contracted 6 per cent. It shrank 4.8 per cent for the whole year.

And while December's PMI reading inched up 0.3 from November's 49.2, it still meant that the sector has been contracting for six consecutive months.

"Manufacturers are actually front-loading productions ahead of the Chinese New Year lull period; we see this happening every December," said Irvin Seah, economist from DBS of the PMI reading. "If anything, the below-50 number still shows that manufacturing is in recession."

Looking at 2016, economists doubted if each sector would still be resilient enough to drive growth.

Singapore's manufacturing does not seem to have a bright future ahead. Economists cited cyclical and structural challenges that the sector has to overcome this year.

Weak external demand, risks from China's economic slowdown and low oil prices were cited as cyclical obstacles. Structural factors would include rising costs and domestic economic restructuring.

Other obstacles lay in the way for the sectors that contributed to fourth- quarter growth.

The construction sector grew at an annualised 7 per cent from the third quarter, or 2.2 per cent in year-on- year terms. This brought it to a 1.1 per cent full-year growth.

But while analysts credited much of the growth as resulting from ongoing public-sector projects, they pointed out that there were no new additional drivers for growth in this sector, which is already facing a softening residential property market.

The future does not bode well for the services-producing sector - the star performer for the fourth quarter - either.

The sector grew an annualised 6.5 per cent from the third quarter, or 3.2 per cent in year-on-year terms. This helped it expand by 3.6 per cent for the full year.

But the financial services sector, one of the main drivers of growth in services, faces further regulatory scrutiny and a deteriorating market environment with thinning net interest margins.

All in all, though MTI's flash estimates portend a sweet ending for 2015, it would barely be enough to make the year a good one.

With no strong upswing in growth for 2016, analysts expect the central bank MAS to retain its current monetary policy of the "modest and gradual appreciation" of the Singapore dollar's nominal effective exchange rate (NEER) unchanged.

Even though Monday's full-year 2.1 per cent growth forecast is in line with the official growth forecast of "close to 2 per cent", it is still far from 2014's 2.9 per cent growth.

In fact, this estimate puts 2015 at the slowest growth in six years. The economy contracted 0.6 per cent in 2009, noted Selena Ling, OCBC's head of treasury research and strategy.

"If we justifiably hold the champagne, the sobering fact is that 2.1 per cent growth for 2015 is irrefutably, even if in line with official guidance, weak," wrote Vishnu Varathan, senior economist for Mizuho Bank, in a note.

MTI will release the fuller GDP estimates for the fourth quarter and the whole of 2015 in February 2016.