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LAST year ended on a poorer-than-expected note for the Singapore economy as manufacturing contracted in the fourth quarter for the first time in seven quarters and growth slowed to 1.5 per cent year-on-year (see infographic).
With Q4's weak growth likely to persist into the first months of the new year and core inflation likely to remain low, economists say the chances of monetary policy being eased in April are now on the rise.
Economists, polled by Bloomberg before the Ministry of Trade and Industry's (MTI) advance estimates were released on Friday morning, had been expecting Q4 GDP to grow 2.2 per cent year-on-year.
Their median quarter-on-quarter growth forecast of 3.1 per cent was even further off the mark. MTI said that after seasonal adjustments, the economy grew only by an annualised 1.6 per cent in Q4 compared to the previous quarter, citing slowing momentum.
The flash Q4 GDP estimates capped what had been a disappointing second half. They also reinforced the "dismal tone" set by recent industrial production and non-oil domestic export numbers, said ANZ economists Weiwen Ng and Glenn Maguire.
When growth slowed to 2.3 per cent in the second quarter, economy watchers were still hopeful for a better second half, with a stronger global recovery.
But that did not materialise.
Instead, manufacturing turned in weaker-than-expected performances in both quarters and other sectors were hit by labour constraints. The result: both Q3 and Q4 growth was weaker than the market had expected.
Manufacturing was the main drag on growth, contracting 2 per cent year-on-year in Q4 for the first time since Q1 2013. Economists estimate that this implies that industrial production in December fell around 3 per cent year-on-year, sharper than November's 2.8 per cent decline.
Though the services and construction sectors posted growth, this was at a slower pace than before.
Construction grew 0.8 per cent year-on-year in Q4, supported by public-sector construction activity. The sharp deceleration that this was from Q1 2014's 7 per cent year-on-year growth, shows that the slowdown in private-sector building activity was significant, said OCBC economist Selena Ling. The property market curbs, including macroprudential credit restraints, have chipped away at growth too, said Mizuho Bank economist Vishnu Varathan.
As for the services sector's 2.6 per cent growth in Q4, MTI said that this was primarily driven by the finance and insurance and business services segments.
What all this added up to was 2.8 per cent growth in 2014, which Prime Minister Lee Hsien Loong described as the economy having performed "moderately well".
But it was still a slowdown from 2013's 3.9 per cent.
He also flagged the "disappointing" performance on the productivity front: it fell 0.5 per cent over the first three quarters of 2014.
Indeed, Singapore's economic restructuring efforts have been slow to deliver productivity growth, said Bank of America Merrill Lynch economist Chua Hak Bin, who predicts that Singapore will grow no quicker than last year's 2.8 per cent this year.
Restructuring has hurt labour-intensive industries, and the external environment remains challenging, with sluggish growth in Europe and Japan, and a slowing China, he added.
ANZ's economists also expect "no quick respite in the current sluggish growth momentum" as productivity growth remains constrained by the transition period required by firms to cut their reliance on foreign labour.
Analysts say the slow growth, which comes as core inflation fell to 1.5 per cent in November, raises the possibility of a shift in monetary policy at the next April review.
ANZ economists, noting that falling oil and commodity prices could depress inflation further, said: "The sluggish growth dynamics open the door for a more neutral monetary policy stance next April."
And while Dr Chua's central bet is still that the Monetary Authority of Singapore (MAS) will stick to its current stance, he thinks the "odds of a shift in policy in April will rise if core inflation continues to stay low and if growth stays weak".
Citi economists Kit Wei Zheng and Yap Kim Leng say that, with "lacklustre growth" and a "backdrop of intensifying disinflation", there is a 30 to 40 per cent chance that the central bank could slow the pace of appreciation in the Singapore dollar this year. "Even without formally easing policy, MAS could still allow the NEER (the Nominal Effective Exchange Rate) to stay below the mid-point of the band," they said.
But Credit Suisse economist Michael Wan said that while market expectations for a change in policy stance will continue to build up, these might be shaped by too pessimistic a view of the economy's outlook.
Lower oil prices - a boon for consumers globally - should provide a fillip for global growth and benefit Singapore's open economy, he said. Also, with signs that Singapore is shifting towards higher value-added services activities, concerns about a loss of competitiveness are overwrought. His more optimistic take on growth thus leads him to believe that the hurdle for a policy change remains high.
Ms Ling said that the key growth risks to watch out for now would be market volatility arising from the US Federal Reserve's hiking interest rates, the resulting capital flows and a sharper-than-expected slowdown in China.