Quick takes: Growth outlook positive on strong prospects for manufacturing, trade

SINGAPORE'S economy exceeded expectations to expand 5.2 per cent year-on-year in the third quarter, led once again by the manufacturing sector and other externally-oriented sectors.

The strong showing prompted the Ministry of Trade and Industry (MTI) to upgrade its 2017 economic growth forecast on Thursday morning. Full-year growth is now expected to come in between 3 per cent and 3.5 per cent. This is up from an earlier estimate of 2 to 3 per cent.

Trade agency IE Singapore also raised its full-year forecast for non-oil domestic exports (NODX) after the trade benchmark grew at a faster 7.6 per cent year-on-year pace in the third quarter.

NODX is now expected to rise 6.5 per cent to 7 per cent in 2017, up from an earlier forecast of 5 per cent to 6 per cent. If the forecast comes true, NODX growth in 2017 will come in at its fastest pace in seven years.

Economists offer some quick takes on the latest data.

DBS senior economist Irvin Seah: The main story behind the GDP (gross domestic product) numbers is that the recovery is broadening. Services expanded 3 per cent year-on-year in the quarter. This is significant as services account for two-thirds of the economy (69.4 per cent). Externally-oriented services industries are expected to do well in the coming quarters compared to the domestic services sector.

Higher frequency data such as re-exports, container throughput, and financial market turnover are all trending higher. In fact, we expect the driver of growth to interchange heading into 2018. Moderation in the manufacturing growth juxtaposed with continued improvement in the services sector's outlook could see the latter becoming the main engine of growth in 2018.

Credit Suisse economist Michael Wan: We continue to expect 2018 GDP to moderate slightly to 3 per cent, from an estimated 3.4 per cent in 2017, for two reasons. First, China is likely to slow down next year from a strong showing, which should imply slower exports growth for Singapore. Second, Singapore's electronics manufacturing sector should not see further one-off capacity expansion in 2018 relative to what we have seen this year.

OCBC economist Barnabas Gan: We continue to stay positive on Singapore's manufacturing momentum, on the back of sustained external demand likely to be seen into 2018.

Growth will likely be underpinned by sustained growth in externally-oriented sectors including wholesale trade, transportation and storage and finance and insurance, which in turn will provide the needed positive spill-over benefits into Singapore's manufacturing sector although growth could taper given the less favourable base effects.

While the expanding global growth likely to be seen into 2018 will provide the needed impetus for further growth expansion in Asian economies, downside risks remain including global policy uncertainty in part due to the US administration's policy amid lingering concerns over the rise of protectionist sentiments.

Elsewhere, geopolitical tensions continue to brew in the background, which could impede global risk appetite should it intensify further into the next year.

Lastly, further monitoring on inflation pressures is warranted, given the increased likelihood for global prices to inflate higher on stronger oil prices, which could potentially motivate a faster-than-expected rate hikes in developed economies.

All-in-all, we upgrade our 2017 year-end growth to 3.4 per cent (up from an initial outlook of 3.3 per cent) while keeping our 2018 growth outlook to range between 2 and 4 per cent, slightly higher than MTI's conservative outlook of 1.5 to 3.5 per cent.

Nomura economists Euben Paracuelles and Brian Tan: With economic growth in the first three quarters averaging 3.5 per cent year-on-year, we see upside risks to our full-year forecast of 2.8 per cent.

The MTI also raised its 2017 forecast to a 3 to 3.5 per cent range which we estimate implies it expects fourth quarter growth to slow to a range of 1.3 to 3.6 per cent.

For 2018, the MTI forecasts economic growth of a slower 1.5 to 3.5 per cent. While we also see some upside risks to our 2018 forecast of 1.9 per cent, we remain cautious of the growth outlook overall and believe this year's pace of growth is unlikely to be sustained. We believe headline economic growth will continue to be uneven, led by semiconductor-related sectors with limited spill-over effects on the rest of the economy.