Quick take: Too early to pop champagne, downside risks remain for Singapore

SINGAPORE'S Ministry of Trade and Industry (MTI) announced on Wednesday that the economy grew by 1.9 per cent from a year ago in the third quarter, a reversal from the 2.6 per cent contraction in Q2 - thanks to a stronger-than-expected services sector.

This exceeded an earlier flash estimate of just a 0.1 per cent expansion, and the market's forecast of no growth.

Here are some comments from economists:

Selena Ling, Head of Treasury Research & Strategy, OCBC Bank:

"Confirmed no technical recession....That said, it may be too early to break out the champagne."

"These downside risks remain intact, being the risk arising from China's ongoing reforms and financial volatility, low commodity prices, anticipated normalisation of US monetary conditions, and potential sudden and large capital outflows from regional countries."

"The growth outlook remains a two-gear Singapore economy, with support coming from finance & insurance and wholesale trade, whereas manufacturing and specific sectors like marine & offshore (due to sustained low oil prices) and labour-intensive industries like retail and food services (due to labour constraints) will remain weak."

"We estimated that manufacturing could continue to contract by 5.4 per cent year-on-year in Q4, with GDP growth around 1.3 per cent year-on-year (+2.5 per cent quarter-on-quarter seasonally-adjusted annualised basis) to bring full-year growth to 2 per cent year-on-year which is our house forecast."

"Our GDP growth forecast for 2016 is 2-3 per cent year-on-year, predicated on a stabilization in China's growth and a fairly gradualist FOMC."

Frances Tan, economist, UOB Bank:

"Downside risks remain. The key risk is still oil prices pulling prices down. And when prices remain low, central banks will continuously adopt a fairly dovish policy in order to support the economic growth.''

Ben Shatil, economist, JPMorgan Chase Bank Singapore:

"A catalyst for spending in Q3 was likely the SG50 National Day celebrations (the monthly retail sales data would suggest this was the case) but as this support fades through Q4, private consumption growth will likely ease. We continue to think that as rates rise further into 2016 and the property market continues to soften, spending will soften in step. In this context, construction spending was down 1.6 per cent qoq saar in Q3, and the shrinking construction pipeline suggests that this sector will become a larger drag on growth next year.''

"...external headwinds remain into 2016. Tighter financial conditions and the slowing property market will continue to weigh on sentiment and bite at domestic activity next year in the J.P. Morgan base case forecast. The better-thanexpected Q3 GDP print pushes up our 2015 full-year growth expectation to 1.9 per cent, but we continue expect lower growth next year of 1.5 per cent. This growth profile should have no immediate implications for a change in monetary policy."