Quick takes update: Cyclical improvement in exports offset by structural headwinds

SINGAPORE'S economy grew 2.5 per cent in the first quarter of 2017 compared to a year ago, after easing 2.9 per cent from the fourth quarter of 2016.

Although it was slightly below market expectations, the latest reading based on advance estimates released by the Ministry of Trade and Industry on Thursday is still at the higher end of the government's full-year forecast of 1-3 per cent for 2017.

Here are some comments by economists on the latest print:

ANZ economist Ng Weiwen:

"Looking ahead, the economic outlook for Singapore - the Asean economy most leveraged to global trade cycles - will hinge on the magnitude and durability of the ongoing export recovery and whether it can filter into other components of growth, including consumption and investment.

"Notwithstanding improving growth conditions, structural headwinds persist. Key among these is slack in the labour market.

"Overall, the interplay between these structural problems and the cyclical improvement in exports suggest only a modest improvement in growth and inflation to edge up slightly higher on administered price increases with generalised demand-induced pressures to be absent."

Nomura economists:

"With domestic demand likely still soft, we believe there is little in the way of demand-pull inflation pressures, similar to the MAS view, although continued tightening on the supply of foreign labour (as part of the economic restructuring agenda) will likely sustain labour cost pressures.

"We continue to expect core inflation to pick up in April due to an electricity tariff hike and average 1.5 per cent for the full year - similar to MAS projections of 1.0 to 2.0 per cent, which were also left unchanged - up from 0.9 per cent in 2016."

OCBC economist Selena Ling:

"Despite the healthy manufacturing clip, the rest of the manufacturing sector is tipped to 'remain patchy' apart from the domestic semiconductor and precision engineering industries.

"Note construction saw its third straight quarter of on-year contraction due to weakness in private sector construction activities and another contraction in 2Q17 looks plausible. Housing rents are also tipped to continue to decline this year, and the lacklustre domestic environment will deter businesses from fully passing on higher costs to consumers."