Singapore flash Q2 GDP growth misses forecasts at 3.8% but economists stick to full-year estimates

SINGAPORE'S economy expanded 3.8 per cent year-on-year in the second quarter of 2018, lower than economist expectations of 4.1 per cent growth, according to Ministry of Trade and Industry (MTI) advance estimates out on Friday.

This was also down from the 4.3 per cent expansion in the first three months of the year.

Manufacturing growth remained the key driver, but slowed to 8.6 per cent, down from 9.7 per cent in the previous quarter. All clusters in the sector expanded in the second quarter, with the electronics and biomedical manufacturing clusters contributing the most to the sector's growth.

Services also saw slower growth at 3.4 per cent, down from 4.0 per cent the previous quarter. Growth was supported primarily by the finance and insurance, and wholesale and retail trade sectors.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye, however, expect both services and overall GDP performance to be upgraded when the final estimates are out in mid-August, noting that "MTI's advance GDP estimate tends to be more conservative".

The construction sector remained in contraction but at an easing rate, falling by 4.4 per cent year on year, extending the 5.2 per cent decline in the previous quarter. This was due mainly to continued weakness in private sector construction activities.

While noting downside risks amid escalating United States-China trade tensions and recently announced property cooling measures, economists largely stuck to their full-year growth forecasts.

Dr Chua and Ms Lee maintain a forecast of 3.5 per cent GDP growth for 2018, adding that impact from the trade war may not yet be felt in the third quarter. They also expect the Monetary Authority of Singapore to maintain its "slight appreciation bias" for the Singapore dollar at October's policy meeting.

ANZ Research noted downside risks to their higher 4.0 per cent full-year growth forecast, but expect monetary policy to be further tightened in October, given that growth in the first half of 2018 "is still well above the upper bound of the MAS's full-year forecast range of 2.5-3.5 per cent".