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Q4 growth beats forecasts, but fails to stir economists

They say manufacturing drivers behind 1.8% growth are volatile and call for more fiscal, monetary action

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"This is hollow cheer as Q4 performance, on many dimensions, proves to be a flash in the pan," wrote Mizuho's Vishnu Varathan. "Fact is, drivers of growth remain uncertain, if not unsustainable."


SINGAPORE'S strong growth data for the last quarter of 2016 would have been a nice way to end off what would have been a gloomy year. But economists, in a rare show of unison, are saying that celebrations can wait, while the economy continues to search for growth drivers and looks to the government for support.

"This is hollow cheer as Q4 performance, on many dimensions, proves to be a flash in the pan," wrote Mizuho's Vishnu Varathan. "Fact is, drivers of growth remain uncertain, if not unsustainable."

In the meantime, some of them are still expecting a near-term monetary easing in view of the impact on inflation from weakening growth. There are also some who flagged concerns about a decoupling of the domestic economy from the pickup in global growth.

Market voices on:

"Re-centring still on," Vaninder Singh of NatWest Markets, in referring to the Monetary Authority of Singapore's (MAS) possible move, proclaimed in the title of his note on Tuesday.

Citi's Kit Wei Zheng was equally cautious, if only a tad more sanguine. With "lingering downside risks to MAS's core inflation forecasts," he wrote in a note on Tuesday, "it remains too early to rule out MAS easing in 2017, even if odds have fallen versus three months ago."

Economists' comments follow a surprisingly strong Q4 and 2016 full-year gross domestic product (GDP) data that was released on Tuesday by the Ministry of Trade and Industry (MTI).

Based largely on data taken from the first two months of the fourth quarter, Singapore's economy had grown in Q4 by 1.8 per cent year-on-year, or 9.1 per cent on an annualised basis from Q3. This put full-year growth in 2016 to be at 1.8 per cent.

Fuller estimates of Q4 and full-year 2016 growth will be released in February 2017. The health of the economy took many by surprise as they sought to round up 2016 on a more cautious note. Even the government didn't see it coming. MTI had said previously that it sees 2016 growth to be between 1 and 1.5 per cent. Private economists earlier surveyed by MAS had slashed their forecasts for 2016 GDP growth to 1.4 per cent.

Q4's performance was a marked departure from Q3's, which had back then spooked economists with evidence of the economy's slowing growth. It saw a revised 1.2 per cent year-on-year growth, but a 1.9 per cent quarter-on-quarter contraction.

And yet, even with Q4's strong showing, economists say that external challenges are intensifying, and Singapore's economy is showing signs of weaknesses - a view they have shared previously with The Business Times.

This Tuesday surprise, therefore, was just not good enough for them.

For one, the numbers showed that Singapore's economic engine is sputtering. Economists pointed out that much of the growth in Tuesday's data comes from manufacturing, which has been dwindling for many months and does not receive much policy support.

On the other hand, the services sector, which receives more support, is in poor health. It is unlikely to receive a boost from tepid domestic demand, particularly consumer demand.

Then there is the sense that even this manufacturing spurt will not last.

NatWest Markets' Mr Singh noted that November's surge in factory output was concentrated in the chemical and pharmaceutical categories. They tend to follow their own three-to-four month product cycles.

Should December's output taper off, "we will see Q4 growth being marked down in the final release", he said. Given these weaknesses, Mr Singh said that the house believes that both fiscal and monetary easing are necessary. "We are leaving our easing expectations for the MAS April meeting intact."

Beyond Singapore's shores, the global environment is changing, with a rising tide of protectionism worrying economists the most.

ANZ's Ng Weiwen said that increased protectionism is adverse to Singapore's export-led growth. It will weaken domestic demand further and stress an already subdued labour market.

OCBC's Selena Ling added that with increased global uncertainty, there will be more market volatility.

This in turn stresses the Singapore dollar and interest rates, which affect corporate and consumer confidence.

But even with these dark clouds on the horizon, there was no denying the strength of Tuesday's numbers.

As a result, Citi's Mr Kit said this may bode well for 2017. He has thus raised his GDP forecast from 1.2 per cent to 1.5 per cent.

The strong data also buys the central bank some time in making policy decisions, said Mr Kit.

"Q4 2016 and full-year GDP growth far exceeded MAS's implicit expectations relayed in October," he wrote, "suggesting a weaker case for a January inter-meeting re-centring".

But Mr Kit warned that this does not mean that the economy will stay in good shape. With household debt-servicing burdens, corporate-sector consolidation and job market slack intensifying, the domestic economy may be dislocated from an expected global pick-up, he said.

With strength dissipating fast from the economy, observers look towards policy support to prop up economic growth.

Mr Kit said that he will look towards the Feb 20 Budget statement and the Committee on the Future Economy's (CFE) report for "further clues on policy action".

The CFE, set up by the government, will unveil its recommendations later this month on how it thinks Singapore's economy can be reconfigured.