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S'pore upgrades 2017 GDP forecast; moderation expected next year
STRONGER-than-expected growth, expanding exports and benign inflation are all coming together to paint a very different picture of the economy that had started the year on an uncertain note.
Singapore's economy is on track for an impressive finish this year, lifted by an improved global outlook and a stronger pickup in electronics, even though economists expect growth to moderate in the coming year due to possible tapering in semiconductor demand and the slowdown of key markets such as China.
The Ministry of Trade and Industry (MTI) upgraded Singapore's gross domestic product (GDP) growth forecast for 2017 to 3 per cent to 3.5 per cent, up from an earlier estimate of 2 to 3 per cent.
Despite the GDP growth upgrade, the core and headline inflation forecasts remain unchanged. The current neutral monetary policy stance thus "remains appropriate", said Jacqueline Loh, deputy managing director of the Monetary Authority of Singapore (MAS).
In tandem with the pickup in the economy, signs indicate that the labour market will also "improve slightly" alongside the increase in hiring during the year-end festive season, said Terence Ho, divisional director of Manpower Planning & Policy division at the Ministry of Manpower.
Singapore's robust showing this year was boosted by its latest third-quarter results, also released on Thursday. The economy grew by 5.2 per cent in the third quarter - its strongest showing since 2013.
The headline figure was revised upwards from October's advance GDP estimates of 4.6 per cent. This also beat economists' expectations of a 5 per cent expansion, a poll by Bloomberg found.
On a quarter-on-quarter, seasonally-adjusted basis, the economy expanded by a whopping 8.8 per cent, accelerating from 2.2 per cent in the second quarter.
Stronger external demand conditions meant that manufacturing and other outward-oriented sectors such as wholesale trade, finance & insurance, and transportation & storage, continued to underpin growth in Q3.
In line with this stronger economic and trade outlook, IE Singapore also announced an upgrade in its forecast for non-oil domestic exports (NODX) for 2017.
It now expects NODX to expand by 6.5 per cent to 7.0 per cent this year, up from a forecast of 5 per cent to 6 per cent provided in August.
Electronic exports grew for the fourth straight quarter; but even as manufacturing remains the breakout star this year, economists say that it is about time for services - which make up two-thirds of the economy - to shine.
Irvin Seah, economist at DBS, said: "The main story behind the GDP numbers is that the recovery is broadening."
Services expanded 3 per cent year-on-year in Q3, its strongest since 2015. All services clusters, except for accommodation & food services, grew in Q3. Within the sector, the financial & insurance cluster was the best performer.
Beyond external-oriented clusters, the MTI said that it sees signs that the recovery is broadening to the domestic economy, such as in business services and retail sales volume, excluding motor vehicles.
The manufacturing sector, on the other hand, showed no signs of slowing down as it posted a growth of 18.4 per cent in Q3, extending its growth of 8.4 per cent in the previous quarter. This was mostly powered by electronics, which surged 41 per cent. Precision engineering - another beneficiary of the electronics boom - grew a robust 16 per cent.
Manufacturing growth was mostly broad-based across the clusters with the exception of transport engineering, which declined on the account of sustained weakness in the marine & offshore engineering segment.
Despite some unevenness in growth performance, economists are mostly upbeat about future prospects.
There is even light at the end of the tunnel for the construction sector, despites its continued contraction.
Yong Yik Wei, director of economics at the MTI, expects improvement in construction demand in the coming year. This is due to the public-sector projects which will be brought forward over the next two years.
Looking ahead to 2018, the Singapore economy is expected to moderate compared to 2017, but "remain firm", said the MTI.
The MTI expects the economy to grow by 1.5 per cent to 3.5 per cent, with growth likely to come in at around the middle of the range.
The moderation in 2018 growth takes into account the projected easing of growth in Singapore's key external demand markets such as China and the Eurozone, said MTI.
Against this external backdrop, the manufacturing sector - especially the electronics and precision-engineering clusters - is likely to continue its expansion to support overall GDP growth.
However, the pace is expected to taper, given less favourable base effects.
Economists Lee Ju Ye and Chua Hak Bin wrote in a note by Maybank: "The year ahead will likely see growth broadening more firmly in services, which will help offset the moderation in manufacturing growth."
DBS' Mr Seah went a step further and said that services could even become the "main engine of growth in 2018" if improvements continue.
However, global downside risks remain, such as uncertainty about the US administration's policies, lingering concerns over protectionist sentiments, as well as possible inflation pressures due to stronger oil prices.
Despite the optimism expressed by most industry watchers, Nomura economist Brian Tan is less sanguine about 2018.
He does not believe that this year's pace of growth is likely to be sustained, and sees little spillover from semiconductor-related sectors on the rest of the economy.
Mr Tan went further by adding that the employment situation is still "not as strong as it should be".
But while there are some improvements on the labour front, the effects are also not likely to be felt so soon due to the slack in the economy.
"At least for next year, we are not terribly gungho about the strength of the economy and wages. It's a question of whether this 5 per cent growth really reflects what's on the ground, and right now, it doesn't feel that way."
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