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Quick Takes: Singapore Q2 GDP disappoints, some economists lower 2015 forecasts

Tuesday, July 14, 2015 - 10:29
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At 1.7 per cent, Singapore's Q2 gross domestic product (GDP) growth came in weaker than market expectations - dragged down by a 4 per cent contraction in the manufacturing sector.

AT 1.7 per cent, Singapore's Q2 gross domestic product (GDP) growth came in weaker than market expectations - dragged down by a 4 per cent contraction in the manufacturing sector.

Here's what private-sector economists had to say about the advance estimates, released by the Ministry of Trade and Industry (MTI) on Tuesday morning.

OCBC's Treasury Research team noted the broad-based slowdown in sequential terms: "The last time all three key sectors declined vis-à-vis (the previous quarter) was Q3 2001. In particular, wholesale & retail trade and business services saw slower expansions, while the transportation & storage sector contracted, and construction was supported by public construction activities."

While some economists - including those from OCBC and Nomura - have kept their 2015 GDP growth forecasts intact, others have revised them downwards on Tuesday's flash estimates.

Citibank's Kit Wei Zheng has cut his full-year GDP forecast to 2 per cent, from an earlier estimate of 2.3 per cent. He said of the government's official forecast: "Although the official GDP forecast is more likely to see an incremental narrowing to 2-3 per cent on Aug 8, an outright downgrade to 1.5-2.5 per cent is possible."

ING's Tim Condon also said that Tuesday's data implies a cut to his full-year growth forecast to 2.5 per cent from 2.8 per cent. "We are reviewing our forecast for downward revision," he said.

While Citi, ING, and Nomura agree that the disappointing Q2 figures raise the likelihood of an MAS loosening in October, Mr Kit said that things are "not yet at tipping point".

Said Mr Kit: "A H2 pick-up could still put year-end GDP within the earlier forecast range. Also, MAS may have already implicitly downshifted growth expectations towards 2.5 per cent in April, and even small downside surprises that prompt modest downgrades to 1.5-2.5 per cent may not be enough to trigger easing."

Added the team from Nomura: "We continue to expect better growth in H2 as US demand improves and sequential growth solidifies in China. This could better allow firms to pass rising wage pressures on to consumer prices. Against this backdrop, we maintain our base case in which the Monetary Authority of Singapore (MAS) keeps its policy stance at the next policy announcement."

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