Q3 GDP performance uneven across sectors

Singapore

SINGAPORE's economic sectors turned in a mixed performance in the third quarter of 2014, with manufacturing staging a turnaround, services growing at a much slower pace, and construction posting a second consecutive quarter of contraction (view infographic).

The economy expanded 1.2 per cent on a seasonally adjusted quarter-on-quarter annualised basis, according to advance estimates released by the Ministry of Trade and Industry (MTI) on Tuesday. This marked a reversal from the 0.1 per cent contraction in Q2, which was revised down from an earlier estimate of 0.1 per cent growth.

As the key driver behind Q3's recovery, the manufacturing sector bounced from the 15.1 per cent contraction in Q2 to post a quarter-on-quarter annualised expansion of 1.2 per cent. Growth was supported primarily by the biomedical manufacturing, electronics, and precision engineering industries.

"But, relief from the sequential growth bounce led by manufacturing is hollowed by the quarter-on-quarter deceleration in services and deeper contraction in construction. There is little surprise then, that year-on-year growth has not picked up from a rather anaemic 2.4 per cent," said Mizuho economist Vishnu Varathan.

Indeed, compared to a year ago, the economy expanded 2.4 per cent, at the same pace of growth seen in Q2. This fell short of the 2.7 per cent median year-on-year growth forecast of 19 private-sector economists polled by Bloomberg prior to the data release.

A sharp moderation in the services sector pulled down overall GDP (gross domestic product) growth. On a quarter-on-quarter basis, services producing industries expanded at an annualised rate of 1.3 per cent in Q3 - far slower than the 4.8 per cent expansion seen in the preceding quarter.

Commenting on the sector's performance, the Monetary Authority of Singapore (MAS) said: "Overall services growth was muted, as the weakness in global commodity demand weighed on re-export and trade financing activities. Sentiment-sensitive segments within the finance & insurance sector also saw some sequential pullback due to the escalation of geopolitical tensions in Ukraine."

But the worst performance came from the construction sector, which registered another quarter-on-quarter contraction of 2.7 per cent in Q3, following the 2.4 per cent fall in Q2.

Adding to MTI's statement that the slowdown was mainly due to weaker private-sector construction activities, JPMorgan Chase Bank's Ben Shatil said: "The second consecutive contraction in the construction sector likely speaks to a slowing in real estate activity after a period of strong growth."

While Q2 GDP may have been downgraded to a quarter-on-quarter contraction - the first in two years - OCBC economist Selena Ling said the likelihood of a recession "still looks small" for now. "But watch the upcoming September NODX (non-oil domestic exports) and industrial production data, due Oct 17 and 24 respectively, for a better gauge of likely manufacturing growth revisions."

Keeping its full-year growth forecast unchanged at 2.5-3.5 per cent, MAS said that the US recovery and mild upturn in the global IT industry will benefit Asia. "However, growth in the core eurozone economies and Japan is likely to remain weak, hampered by structural headwinds," it said.

The central bank added that continued improvement in global demand should provide "some support" to the external-oriented sectors of the Singapore economy, although it cautioned that growth performance will be uneven across sectors, as companies grapple with restructuring woes.

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