The Singapore economy grew 2.2 per cent on a year-on-year basis in the second quarter, marginally higher than the 2.1 per cent expansion in the previous quarter and in line with analysts’ expectations, according to advance estimates from the Ministry of Trade and Industry (MTI) on Thursday (Jul 14).
On a quarter-on-quarter, seasonally adjusted and annualised basis, the economy expanded 0.8 per cent, an improvement from the 0.2 per cent growth in the first quarter.
The figures were in line with analysts’ forecasts, with economists in a Reuters poll predicting a 2.2 per cent year-on-year growth and a 0.9 per cent growth on a quarterly basis.
The manufacturing sector expanded by 0.8 per cent on a year-on-year basis, a reversal from the 0.5 per cent decline in the previous quarter. Growth was supported by an increase in the output of the biomedical manufacturing and electronics clusters, MTI said. On a quarter-on-quarter basis, the sector grew at an annualised rate of 0.3 per cent, following the 18.4 per cent growth in the preceding quarter.
The construction sector grew by 2.7 per cent, easing from the 4.5 per cent growth recorded in the previous quarter. The moderation in growth was largely due to a slowdown in private sector construction activities, the ministry said. On a quarter-on-quarter basis, the sector expanded at an annualised rate of 0.6 per cent, lower than the 3.5 per cent expansion in the preceding quarter.
Growth in the services-producing industries came in at 1.7 per cent, the same pace of growth as in the previous quarter. Growth was driven mainly by wholesale and retail trade, and the transportation and storage sector. Within the retail trade sector, growth was supported by strong motor vehicle sales. On a quarterly basis, the industry grew by 0.5 per cent, reversing the 4.8 per cent contraction in the preceding quarter.
The advance GDP estimates were computed largely from data in the first two months of the quarter – in this case, April and May. They are intended as an early indication of the GDP growth in the quarter, and are subject to revision when more comprehensive data become available, said MTI.
The preliminary GDP estimates for the second quarter, including performance by sectors, sources of growth, inflation, employment and productivity, will be released next month.
GROWTH IN LINE WITH EXPECTATIONS, BUT LIKELY TO DETERIORATE: ANALYSTS
Mizuho senior economist Vishnu Varathan said manufacturing primarily drove the improvement for the second quarter.
“Manufacturing snapped six consecutive quarters of year-on-year contraction, to come into an expansion. It’s a modest expansion, but nonetheless a poignant one,” he said.
The improvement of the economy in the second quarter, after the numbers for the first quarter were upwardly revised from 1.8 per cent to 2.1 per cent, probably framed a “stabilisation story” in Singapore’s growth, if not a slight improvement, added Mr Varathan.
However, economists told us the recovery is likely to be tentative, with the volatile pharmaceuticals unlikely to sustain the lift in industrial production, while sectors like transport engineering and petrochemicals continue to show signs of weakness.
On the external front, the impact from UK’s vote to leave the European Union is likely to be felt in the coming months, said Mr Brian Tan, Nomura Singapore’s Southeast Asia economist.
“The Singapore economy is so open, not just to trade, but also from the financial market channels because we’re an international financial centre, so both these channels could have a very negative impact on the Singapore economy once Brexit has happened,” Mr Tan said.
He added the impact may possibly be apparent in the July and August trade data, saying that “because of this, we worry that the growth outlook for Singapore will deteriorate over the coming quarters, especially when we get into the third quarter when the impact of Brexit might be a bit more visible.”
Amid ongoing macroeconomic risks and currency market volatility, observers also said the Monetary Authority of Singapore is likely to actively review the need to weaken the Singapore dollar.
For the full year, the Government’s forecast is for Singapore’s economy to grow by between 1 and 3 per cent.