Quick takes: Muted outlook despite stronger Q4 Singapore GDP growth

THE Singapore economy grew a better-than-expected 2.1 per cent year-on-year in the fourth quarter of 2014, the Ministry of Trade and Industry (MTI) said on Tuesday morning, as the manufacturing sector contracted less than initially anticipated. Q4's performance brought full-year growth for 2014 to 2.9 per cent - slightly above the government's January estimate of 2.8 per cent, and exactly at private-sector economists' consensus forecast of 2.9 per cent. Meanwhile, non-oil domestic exports (NODX) are tipped to grow 1.0-3.0 per cent in 2015 over a year ago, after dipping 0.7 per cent in 2014. NODX grew 4.3 per cent year-on-year in January 2015, the third straight monthly increase.

Labour productivity shrank 0.8 per cent in 2014 after expanding 0.3 per cent in 2013, despite a low unemployment rate of 2 per cent and prompted an acceleration of unit labour cost to 3.5 per cent.

Here are some quick reactions from bank economists:

ANZ Bank:

Singapore's Q4 final GDP was revised higher. However this does not change the trend in growth. Full year growth was at 2.9 per cent in 2014, and we continue to expect growth of about 3.2 per cent in 2015. Manufacturing climbed 2.7 per cent in 2014, construction was up 3.0 per cent, and services climbed 3.2 per cent.

We expect services to buoy growth in 2015, while manufacturing growth will likely present some downside risks to the outlook. Construction will continue to add a small amount to GDP.

Singapore's NODX began the year on slightly firmer footing. The uptick in growth was driven by the electronics sector, coming from a low base.

That said, we do not expect a strong rebound in Singapore's exports over 2015 as the manufacturing sector continues to get squeezed with supply side reforms.

DBS Bank:

The economy grew by 2.1 per cent year-pn-year in Q414. This is in line with our above consensus forecast of 2.0 per cent (consensus: 1.7 per cent) and higher than the 1.5 per cent growth pace projected in the official advance GDP estimates. Full year GDP growth now reads 2.9 per cent, just a tad lower than our long held forecast of 3.0 per cent.

The story behind the numbers is smack in line with our expectation. The revision came amid stronger Oct-Dec industrial production numbers as well as an upward revision in the services growth figures.

The services sector grew by 3.1 per cent in the quarter, significantly faster than the 2.6 per cent forecasted by the advance estimates. Growth was supported mainly by the finance and insurance sector, which recorded a growth pace of 10.3 per cent. That translates into a stunning 36.2 per cent surge on a quarterly basis.

That said, labour crunch amid the domestic restructuring will continue to weigh down on the performance of this sector in the coming quarters.

Mizuho Bank:

Upbeat Q4 GDP revision surprised even the bullish forecasts thanks to manufacturing shrinking less and services accelerating more than expected. But the pertinent point about upward revision is that optimism is backward (looking). Subdued growth outlook for 2015 (2-4 per cent) remains unchanged as do expectations for borderline negative inflation to persist in H1 as oil prices remain low.

Essentially then, modest upward revision to Singapore's Q4 GDP does not undermine a surprisingly early S$NEER slope reduction (easing) in January.

Admittedly, softer oil prices, a recovering US and bottoming China are reasons for a measured pick-up. But this should only avert further easing, not reverse the January move.