Quick takes: Singapore Q2 GDP growth still lacklustre, caution prevails

SINGAPORE'S gross domestic product (GDP) grew by 2.2 per cent in the second quarter of this year, marginally higher than the 2.1 per cent expansion in the first quarter and matching analysts' expectations, according to advance estimates from the Ministry of Trade and Industry (MTI) on Thursday.

Here are some economists' comments:

Euben Paracuelles and Brian Tan, Nomura:

"This implies lacklustre sequential growth of 0.8 per cent quarter-on-quarter seasonally seasonally-adjusted annualised basis (q-o-q saar) in Q2 from 0.2 per cent in Q1."

"The slight increase in year-on-year GDP growth was led by the manufacturing sector, in which output rose by 0.8 per cent year-on-year (y-o-y) after a 0.5 per cent decline in Q1, supported by biomedicals and electronics segments. This offset construction sector growth weakening to 2.7 per cent from 4.5 per cent, while services sector growth was stable at 1.7 per cent."

"We continue to think that, with growth fundamentals still weak, the external headwinds from the Brexit vote will likely tip the economy into a technical recession in H2 ( We expect widespread interest rate cuts). Biomedical manufacturing, for example, tends to be volatile and may not sustain; similarly, strong motor vehicle sales may have boosted retail trade, but this was mainly because of an increase in the supply of car certificate of entitlement quotas (which will be cut in August).

"For full-year 2016, we maintain our GDP growth forecast of 1.1 per cent, which is below potential and close to the bottom of the MTI's forecast range of 1.0-3.0 per cent. We would not be surprised if the MTI narrows its forecast to 1.0-2.0 per cent or lowers its forecast altogether in August."

Weiwen Ng, ANZ Research:

"We remain cautious on Singapore's growth. The risk of external weakness spilling into domestic activity -if materialise- will continue to be a drag on the labour market, muting both growth and inflation outlook."

"Policy support needs to step up to counteract the waning momentum in domestic activity as well the absence of an external led demand. Already, Singapore is leaning in heavily on its fiscal levers with an expansionary stance, with an estimated impulse at slightly more than 1.0 per cent of GDP."

"With MAS's policy complicated by the strength in the S$NEER, there is still space for subsequent off-budget fiscal measures should the economic outlook deteriorate further."

"Interestingly, there are some parallels in the policy response now similar to the 2008-09 Global Financial Crisis (GFC). The increase in public sector capex support- evident in the recent surge in government construction contracts awarded- would help mitigate the softer private sector residential construction activity. Notably, this was also the case during the GFC, which incidentally coincided with a period of neutral FX policy. While this is growth supportive, this is unlikely to sustain an acceleration in growth. Hence, sluggish GDP momentum ahead is inevitable for Singapore on account of the ongoing regional trade recession, China's waning growth momentum as well as Brexit uncertainties."

Philip McNicholas, BNP:

"Superficially, Singapore's advance estimate of Q2 GDP growth was in line with consensus but slightly weaker than our forecast. Yet, upward revisions to Q1 services output, more than compensating for cuts to prior manufacturing and construction estimates, indicate a stronger platform for 2016 growth than previously thought. This stands the city-state in good stead to weather any external growth pressures."

"Moreover, with core consumer price index (CPI) set to accelerate back toward 2 per cent y-o-y on average in 2017, arguments for the Monetary Authority of Singapore (MAS) to re-centre the SGD nominal effective exchange rate (NEER) policy band lower appear stretched. Consequently, we retain our call for policy settings to be unchanged in October."