Economists expect Q2 growth to be revised upwards

Singapore

ECONOMISTS expect a more modest second-half economic growth, so the latest government forecast of around 2.5 per cent growth for this year, announced by Prime Minister Lee Hsien Loong in his National Day message, points to an upward revision to the second-quarter gross domestic product (GDP).

Economists who spoke to The Business Times mostly said they will retain their forecasts, which range from 2.2 to 3.0 per cent for full-year GDP growth; they reckon Q2's figure will come in at 2.5 to 2.8 per cent.

Referring to the latest government forecast, SIM Global Education senior lecturer Tan Khay Boon said: "This forecast implies that, in spite of the uncertainty in the international trade environment and the challenges restructuring the economy, Singapore is able to hold on to the growth momentum reasonably well.

"For the whole year, to achieve 2.5 per cent growth, stable Q2 and Q3 growth and strong Q4 growth will be needed to counter the negative Q1 growth quarter on quarter."

Maybank Kim Eng economist Chua Hak Bin, whose forecast is a bullish 3 per cent, said the Ministry of Trade and Industry (MTI) will likely upgrade its full-year GDP growth forecast range to 2-3 per cent from 1-3 per cent, given the growth recovery in H1.

Noting that the expectation for 2.5 per cent growth is the mid-point for the revised GDP growth range, he said: "GDP growth has strengthened on the back of manufacturing, particularly electronics. There are also signs that biomedical output is starting to strengthen after the weakness in the early part of the year."

Mr Chua added that there are visible signs that the recovery is broadening to services, including financial, business as well as retail and wholesale trade services.

The majority of the seven economists BT spoke to expect manufacturing growth to moderate in H2 2017, given the high base in Q4 2016.

UOB Bank economist Francis Tan said the key sectors supporting growth in H1 and Q4 2016, such as electronics and precision engineering clusters, may not continue registering double-digit growth in H2.

Manufacturing, which is dependent on the global demand and tech cycle, remains the key driver of the economy, followed by services, said OCBC Bank economist Selena Ling.

"Manufacturing outperformance will not mean higher employment in this sector; in fact, net manufacturing employment has been contracting for several quarters," she said.

However, she said the re-acceleration of services growth, in line with the improvement of domestic consumer and business confidence, may partly compensate for the moderation expected in manufacturing.

"Services will benefit from the improving regional trade and economic momentum in the region and domestically, with financial and tourism-related services being the key beneficiaries. The domestic structural challenges of higher business costs, tight manpower and need to reskill, upgrade and restructure, especially for SMEs (small and medium enterprises), remain," she noted.

Household consumption too has remained at a non-recessionary low despite the recent upswing in the external cycle, said ANZ's Ng Weiwen.

"We find it difficult to envisage a meaningful pick-up in household consumption growth, particularly with households boosting precautionary savings amid elevated job market uncertainty."

Strong income growth, which is necessary to lift consumption, is absent. Meanwhile, productivity has not picked up sufficiently to stimulate a corresponding and sustained increase in wages, he noted.

Credit Suisse economist Michael Wan said he expects regional export momentum to slow in H2 from a strong first half, reflecting slower Chinese domestic demand.

External factors also weigh on the minds of SIM Global Education's Dr Tan and Mizuho Bank economist Vishnu Varathan, who said downside risks are far more prominent due to the potentially large adverse shocks from the China credit fallout, US protectionism and geopolitics.

Mr Varathan said: "Nonetheless, if these risks remain contained - as they have in H1 - then the outcomes tilt a little to the upside." He added that full-year growth is likely to surprise, albeit rather modestly, by coming in at above 2.5 per cent.

He said the cyclical recovery in exports and manufacturing will not fully reverse, so will provide measured support in H2. He added that acute construction sector weakness in H1 is also likely to subside in H2.

The fuller estimate of Singapore's Q2 economic growth will be released by MTI at 8am on Friday.