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S'pore 2016 growth surprises but path forward remains clouded

External outlook in 2017 remains a mixed bag, while domestic concerns are not dissipating

A manufacturing-led uptick in the final months of 2016 may have steadied Singapore's economic keel, but the trade-dependent economy is also realising that it is sailing into choppier political waters.


A MANUFACTURING-led uptick in the final months of 2016 may have steadied Singapore's economic keel, but the trade-dependent economy is also realising that it is sailing into choppier political waters.

So although 2016 fourth-quarter and full-year gross domestic product (GDP) data surprised many, Singapore is not wavering from its previous growth forecast for this year.

In fact, the government expects Singapore's road ahead to be similar to what the city-state went through last year - a year notable for its downbeat sentiment.

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Loh Khum Yean, Ministry of Trade and Industry's top official, told reporters on Friday: "It's a bit of a mixed and varied picture that we see here. Overall, we expect that growth (in 2017) will be broadly similar to what we saw in 2016."

Together, the public officials present at the press conference offered analyses that seemed to portray a reversal of trends as 2016 drew to a close. Manufacturing, once seen as a sector in decline, outperformed to lift headline growth; trade performance seemed to be singing a different tune, too, as indicators picked up, but these are not enough for MTI to change its growth forecast for this year.

In a statement on Friday, MTI said the Singapore economy is expected to grow at a modest pace of 1 to 3 per cent this year, unchanged from an assessment made in November last year.

"Uncertainties and downside risks in the global economy remain. Political risks and economic uncertainties have risen."

MTI's figures, released on Friday, showed that a manufacturing surge in the final weeks of 2016 lifted full-year growth.

GDP growth for the fourth quarter was at a quarter-on-quarter 12.3 per cent, or 2.9 per cent year-on-year.

For the whole year, the economy grew 2 per cent, better than earlier estimates of 1.8 per cent, outperforming 2015's 1.9 per cent, and notably, well above MTI's earlier pencilled range of a 1 to 1.5 per cent growth.

The economy outperformed primarily because of manufacturing's stellar performance, said Mr Loh.

Manufacturing, which accounted for about 19.6 per cent of GDP in 2016, recorded a stunning 39.8 per cent quarter-on-quarter spike in Q4. In year-on-year terms, it grew 11.5 per cent that quarter. For the whole year, the sector grew 3.6 per cent.

Mr Loh said: "We were surprised on the upside in the pickup of this growth momentum. We expect that the rebound in the electronics, and in particular, semiconductors, to carry on into 2017."

Beyond manufacturing, the outlook for external-oriented sectors seemed to be brightening for Singapore.

The MTI expects the US and larger Asean economies to improve this year.

Container throughput was strong in the second half of 2016, noted MTI economics division director Yong Yik Wei. "For 2017, we expect this segment to continue to support growth because of projected movements in global trade flows," she said.

Observers said that while the growth trajectory for Singapore may have stabilised a bit, the crux was whether these upticks, in the face of stresses in the economy, can filter through.

Time is of the essence, said CIMB economist Song Seng Wun. "The situation now is not as dire as some may have expected previously; we're seeing some green shoots. But hopefully these green shoots can broaden out and grow into a field."

Weak consumer sentiment is a concern. Vaninder Singh from NatWest Markets noted that private consumption fell by 2.3 per cent year-on-year, "the first negative number in 30 quarters" since the financial crisis.

JP Morgan's Benjamin Shatil noted that private investment contracted by 5.5 per cent, "largely reflecting declines in construction investment".

The construction sector performed poorly in 2016, expanding by a mere 0.2 per cent from the year before.

Fixed investment activity also weakened further to a 5 per cent year-on-year fall, from a 4.3 per cent drop previously, noted Credit Suisse's Michale Wan.

MTI's Mr Loh also expressed concern over political uncertainties.

While protectionism, as seen from the United Kingdom's exit from the European Union, and key elections in the EU still remain a worry, he also sounded the alarm about the new US president Donald Trump's hand at managing the world's largest economy.

"Political risks and the lack of clarity on the policies of the new US administration have also heightened economic uncertainties globally and led to financial market volatility," he said.

He also stressed that should China tighten monetary conditions further, a sharp pullback in credit and investment growth will weigh on its economic growth. This would have knock-on effects on Singapore.

In OCBC economist Selena Ling's view, China's slowdown is the concern that is most likely to materialise this year.

"They're concerned about some of the property bubble and bond market, so tightening is highly likely," she said. "That could be the real risk."