Real estate and banking weigh on services' Q2 growth

Singapore

WORRYING performances from real estate and the banking sector dragged on services growth in Singapore in the second quarter, while the electronics and biomedical clusters boosted manufacturing, which posted its first year-on-year growth in more than seven quarters.

Singapore's services sector, representing about three quarters of the economy and often viewed as more resilient than manufacturing, grew just 1.4 per cent year-on-year in the three months ended June 30, one of its slowest since the 2008 financial crisis. It grew 1.7 per cent in Q1.

This contrasted with manufacturing's 1.1 per cent, a turnaround from Q1's 0.5 per cent contraction and its first growth in more than a year. This sector represents about a fifth of the economy.

Construction grew at 3.3 per cent, a tad slower than the 4 per cent in Q1 as private-sector works slowed.

Full estimates of Singapore's Q2 economic performance were released on Thursday by the Ministry of Trade and Industry (MTI).

The changes in pace of growth for services and manufacturing in Q2 were even more stark in quarter-on-quarter terms.

Services in Q2 shrank for a second quarter, with a 0.6 per cent contraction after Q1's shrinkage of 4.9 per cent.

Manufacturing, however, expanded 1 per cent, after having registered a heady Q1 18.7 per cent growth.

Construction expanded by 5.3 per cent, quicker than Q1's 1.4 per cent.

Economists zeroed in on the business services and finance and insurance segments as responsible for the services sector's poor showing.

Business services, which includes real estate, rental and leasing, and administrative and support services, shrank by 0.2 per cent year-on-year, its first contraction in over a year. It grew by 0.1 per cent in Q1.

This contraction was largely due to the real-estate segment, said MTI economics division director Yong Yik Wei at a press conference on Thursday.

"And it has been sluggish primarily because of weakness in the private residential property market ... we expect that to continue to drag on the sector," she added.

Finance and insurance also pulled down the services sector's growth, growing by only 0.8 per cent in Q2, down from 2.7 per cent in Q1.

The slowdown can be "mainly attributed" to the banking sector, said MAS deputy managing director Jacqueline Loh at the same briefing.

As a result of weaker external demand, the sector has suffered a contraction in bank lending, mostly to East Asian economies. Portfolio management and bank fees have also dipped. "In particular, trade financing activities to China have registered subdued outturns alongside moderation in regional trade growth," she added.

Volatility in the foreign-exchange markets, however, boosted receipts for the finance and insurance segment; growth in life and health insurance plans also lifted performance.

But the weakness in the segment as a whole worried some economists.

HSBC economist Joseph Incalcaterra said: "While the contraction in finance and insurance output over the past two quarters is partly due to negative payback following the surge in Q4, it is nonetheless reflective of some structural concerns stemming from credit saturation in Singapore and the broader region, and the impact this will have on loan growth."

Elsewhere, tourism, and information and communications services are shaping up to give the services sector a boost, said MTI.

Manufacturing got a lift from the semiconductor and biomedical clusters, but MTI cautioned against optimism in continued growth: "This may not be sustained in light of sluggish global economic conditions."

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