Singapore provided a report card on its economy that beat analyst forecasts in one of Asia’s earliest growth estimates, as improving services and construction countered faltering exports. But it may be too early to celebrate.
Gross domestic product rose an annualised 5.7% in the three months to Dec 31 from the previous quarter, when it expanded a revised 1.7%, the trade ministry said in an advance estimate on Monday. The median of nine estimates in a Bloomberg News survey was for a 1% expansion. The economy grew 2.1% last year, the slowest pace in six years.
Singapore's export-oriented economy, always vulnerable to global swings in demand, reflects the threat China's slowdown poses for the region. The island's largest export destination is tipped to expand at the slowest pace in 25 years, and the first Chinese economic reports of 2016 signalled manufacturing weakened for a fifth straight month. Domestically, home prices posted their longest losing streak in 17 years last quarter and a labour crunch could cap further gains in services.
"There could be high odds of a downward revision come February," said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd, referring to final GDP figures due next month. "Given that the outperformance for this quarter happens to be in the services sector, it could be rather transient. Singapore remains confronted with twin headwinds externally and domestically."
The Singapore dollar traded at 1.4226 against the US currency as of 11.25am, compared with 1.4185 on Dec 31. Singapore markets were closed for New Year's Day on Jan 1. The Straits Times Index fell 1.5%.
Advance figures
Monday's data are advance estimates computed largely from figures in the first two months of the quarter and may be revised later, according to the trade ministry.
There has been a difference of 4.3 percentage points on average between the advance and final readings of Singapore's GDP growth since the start of 2010, based on annualised quarter-on-quarter data compiled by Bloomberg. The difference is a narrower 1 percentage point for U.S. GDP and 1.6 percentage points for Japan's.
Singapore faces challenges including fiercer competition in a globalised world, Prime Minister Lee Hsien Loong said in his New Year message on Dec 31. The economy is "slowing down and undergoing transition," he said.
GDP grew 2% in the fourth quarter from a year earlier, compared with a median survey estimate for 1.2%.
Services support
Singapore's manufacturing fell 3.1% last quarter from the previous three months, the trade ministry said. The services industry grew 6.5% in the same period, while construction expanded 7%.
The Southeast Asian nation has relied on its position as an Asian financial hub to bolster services as overseas demand for its goods faltered. While industrial production fell for a 10th straight month in November, retail sales rose for a ninth month in October.
"Once again, the service sector is in the driving seat," Irvin Seah, an economist at DBS Group Holdings Ltd in Singapore, wrote in a note. "However, while this sector is known to be a resilient and stable engine of growth for Singapore, performance of the sector going forward will continue to be affected by the existing domestic manpower crunch and drag from the manufacturing sector."
Easing expectations
The Monetary Authority of Singapore eased its exchange rate policy for a second time last year in October, saying weakening prospects for global growth would pose "headwinds" in the coming months. Singapore's consumer prices fell in November from a year earlier for a 13th straight month in the longest streak of declines as a renewed slump in oil prices threatens to delay a recovery in inflation.
The island's home prices dropped for a ninth quarter in the three months ended Dec 31 as tighter mortgage curbs cooled demand in Asia's second-most expensive housing market. An index tracking private residential prices fell 0.5% last quarter from the previous period, according to preliminary data released Monday, taking the annual decline to 3.7%.
"I think the bar for further easing has been set quite high by MAS," said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. "However, if I'm right that the headwinds to growth will intensify as we move into 2016, I think market expectations for easing will rise as we move into the next few months."