Upside surprise in Singapore’s Q3 GDP unlikely to last into Q4: economists

SINGAPORE’S third-quarter economic growth turned out to be more robust than expected, prompting several economists to upgrade their full-year growth outlook, even as they continue to warn of headwinds in Q4 and beyond.

“The upside Q3 growth surprise implies an upgrade of our 2022 growth forecast from 3.3 per cent to 3.7 per cent, even assuming a further slowdown for Q4,” said OCBC chief economist Selena Ling.

RHB senior economist Barnabas Gan also raised his outlook to 3.7 per cent, from 3.2 per cent, adding that he maintains his view for growth momentum to slow in Q4.

Others, like DBS and Maybank, said they will be reviewing their GDP growth forecast following the release of factory output numbers later this month and the final Q3 print next month. DBS’s outlook is 3.5 per cent, while Maybank’s is 2.8 per cent. UOB said it is keeping its forecast to 3.5 per cent.

Gross domestic product (GDP) in Q3 expanded 4.4 per cent year on year, a notch lower than the revised 4.5 per cent growth in the previous quarter, advanced data from the Ministry of Trade and Industry (MTI) showed on Friday (Oct 14).

The figure was nearly one percentage point higher than the 3.5 per cent growth private-sector economists had predicted, according to a Bloomberg poll.

Likewise, quarter-on-quarter growth at 1.5 per cent beat their expectations of a 0.7 per cent expansion. It also helped Singapore avert a technical recession, defined as two consecutive quarters of quarter-on-quarter contraction, since GDP in Q2 shrank 0.2 per cent sequentially.

Much of the growth in Q3 came from the services industry, and UOB head of research Suan Teck Kin noted that it accounted for 87 per cent of headline growth.

This has helped to offset the decline - the slowest since Q2 2020 - in the manufacturing sector, which had helped to keep the Singapore economy afloat during the Covid-19 pandemic.

“We continue to expect softer manufacturing performance in the coming quarter, as manufacturing turns from a driver to drag on economic growth,” said DBS senior economist Irvin Seah.

This comes as external demand is weakening amid tighter monetary conditions and higher inflation, he added, with even electronics demand waning.

On the other hand, the services sector - in particular accommodation and food services, real estate, administrative and support services, as well as other services - was supported by the easing of domestic and border restrictions, which have helped to boost visitor arrivals.

Q3’s performance brings year-to-date growth to 4.3 per cent, which already exceeds the official full-year growth forecast band of 3 to 4 per cent that MTI in August narrowed to.

But a second revision of the official outlook seems unlikely, with economists now bracing for a slowdown in Q4.

“I’m still looking for further deceleration in growth in Q4, so the top end of the official 3 to 4 per cent forecast range is still plausible, since global growth prospects have been marked down again by the IMF and there could be further downside arising from US-China rivalry over semiconductors as an example of the geopolitical uncertainties facing the global economy,” OCBC’s Ling told The Business Times.

Concurring, DBS’s Seah said there could be further deceleration in growth in Q4, with the full-year figure near the top end of the current forecast range.

“Tighter monetary conditions, high inflation, and geopolitical tensions will exert even greater pressure on global economic growth momentum in the coming quarter,” he said.

Meanwhile, the outlook for 2023 appears to be even gloomier.

In its biannual Monetary Policy Statement on Friday, the Monetary Authority of Singapore (MAS) noted that growth in Singapore’s major trading partners will slow to “below trend but stay positive” in 2023.

However, it added that some key economies could face full-year recessions from “further shocks”, including geopolitical tensions that could drive inflation higher.

Likewise, MAS said Singapore’s GDP is likely to grow at a pace “below trend” next year that could cause the “currently mildly positive output gap to reverse”.

Noting that DBS recently lowered its 2023 growth forecast for the US and China to 0.3 per cent and 4 per cent respectively, Seah said he is also downgrading his 2023 GDP outlook to 2.2 per cent, from 3 per cent, as “external headwinds are certainly picking up”.

Maybank is keeping its 2023 forecast at 1.5 per cent, noting that recession risks have risen “significantly” while the European Union is likely to slide into recession on supply shocks from the Russia-Ukraine war.

UOB is expecting full-year growth to come in at only 0.7 per cent, to reflect the “broad moderation in external outlook” next year.

“Base effects are expected to work against the incoming data as we expect headline GDP and their components in Q4 and beyond to face downward pressures,” said UOB’s Suan.