Economists upgrade Singapore GDP outlook after better-than-expected Q3

SEVERAL economists have upgraded their full-year outlook for Singapore after third-quarter growth figures suggested the beginning of a recovery.

This comes as gross domestic product (GDP) grew 1.1 per cent year on year in Q3, revised from an advance estimate of 0.7 per cent year on year, said the Ministry of Trade and Industry (MTI) on Wednesday (Nov 22). Private-sector economists polled by Bloomberg had expected a growth of 0.8 per cent. GDP in Q2 grew 0.5 per cent year on year.

Sequentially, the economy grew 1.4 per cent in Q3, revised from 1 per cent and much faster than the previous quarter’s 0.1 per cent growth.

“The upward revision was expected, but the magnitude was much larger,” said Khoon Goh, ANZ head of Asia research. “As the advance estimate was based on data for the first two months of the quarter, the upward revision indicates increased pick-up in momentum in the month of September.”

MTI narrowed its full-year outlook to “around 1 per cent”, the midpoint of its earlier forecast range, due to “subdued external demand”.

This is because even though the US economy had done better than expected in recent months, cumulative rounds of monetary policy tightening are likely to moderate growth in the US and the eurozone, while China’s growth may slow further.

Nonetheless, economists are cautiously optimistic about Singapore’s prospects for the rest of the year and beyond.

“The worst appears to have passed for Singapore’s economy,” said HSBC Asean economist Yun Liu.

“After narrowly avoiding a technical recession in Q2, Singapore’s economy has shown positive green shoots of recovery in H2, though it is still at a nascent stage,” she added. “But what is more encouraging is that the distribution of growth is more broad-based.”

She noted that this was most evident in the manufacturing sector, where contraction eased to 4.6 per cent year on year in Q3, compared with 7.7 per cent previously.

She added that external demand remains sluggish. The manufacturing sector clocked its first sequential growth in 2023, albeit at a marginal at 0.5 per cent.

Other economists pointed out that Q3’s performance was lifted by the services sector, which helped to offset the decline in manufacturing.

“The services sector posted lower growth than Q2 due to the high base, but maintained a steady momentum in quarter-on-quarter seasonally adjusted terms,” said Maybank economists Chua Hak Bin and Brian Lee. “Growth has become more even, with a pick-up in external-oriented sectors vis-a-vis moderating reopening tailwinds.”

Within the services-producing industries, finance and insurance services were the best performing in Q3, swinging to a growth of 1.5 per cent on the year, from a 1.1 per cent contraction previously.

“We could see financial services turning up gently, with global central banks closer to pausing their tightening cycles, alongside more supportive base effects,” said DBS economist Chua Han Teng, adding that this also reflected some stabilisation against weakness over the past three quarters.

The better-than-expected numbers have prompted at least five banks to raise their GDP outlook for 2023.

UOB and Nomura have upgraded their forecast to 0.9 per cent; Barclays and Citi to 1 per cent; and Maybank to 1.1 per cent. DBS is keeping its outlook at 0.9 per cent, and RHB at 1.5 per cent.

The optimism is also expected to extend into 2024. Maybank economists said: “Better than expected third-quarter GDP growth confirms that the economy is on track for a stronger recovery going into 2024, led by outward-facing sectors.”

MTI expects GDP to grow 1 per cent to 3 per cent next year, but most economists have pencilled a growth outlook closer to the upper end of the range.

Among them, Nomura is keeping its 2024 forecast at 2 per cent; DBS and Maybank at 2.2 per cent; Citi at 2.5 per cent; and RHB at 3 per cent. Barclays is upgrading its outlook to 2.2 per cent, from 1.8 per cent.

“Better than expected third-quarter GDP growth confirms that the economy is on track for a stronger recovery going into 2024, led by outward-facing sectors,” said the Maybank team.

Citi economist Kit Wei Zheng said his 2024 forecast is predicated on an expected recovery in semiconductor exports, with chip export momentum expected to gain traction into H1, although a delay or slowdown remains possible.

UOB is the only outlier, lowering its 2024 projection to 2.9 per cent, from 3 per cent.

“Within manufacturing and externally oriented services sectors, activity is likely to stay fundamentally weak in the H1 as external demand continues to be weighed down by tight financial conditions,” said UOB economists Alvin Liew and Jester Koh.

However, they added that signs of a broader recovery in manufacturing could emerge by mid-2024 as global central banks may begin to cut rates as inflation moderates. This could ease the financial conditions supporting consumption and investment activity, implying a gradual recovery in external demand.