Singapore's Economy Expands More Than Estimated on Services

  • Government forecasts 1%-3% economic growth next year
  • Island's trade ministry trims export forecasts for 2015

Singapore’s economy grew more than initially estimated in the third quarter as services helped offset a decline in manufacturing amid slowing growth in China. The local currency rose.

Gross domestic product rose an annualized 1.9 percent in the three months through September from the previous quarter, when it fell a revised 2.6 percent, the trade ministry said in a statement Wednesday. That compares with an initial government estimate of a 0.1 percent expansion and a median forecast for no growth in a Bloomberg News survey of 15 economists.

The city-state is expecting economic growth to be "close to" 2 percent in 2015, the lower end of its earlier forecast for an expansion of 2 percent to 2.5 percent. GDP is expected to increase 1 percent to 3 percent in 2016, the trade ministry said.

Singapore has relied on its position as an Asian financial hub to bolster services exports as overseas demand for its goods faltered amid slowing growth in China and uneven recoveries in the U.S. and Europe. While the island’s industrial production fell for an eighth straight month in September, retail sales growth has been positive over the same period of time.

“Singapore has avoided recession despite the difficulty in the manufacturing sector,” said Song Seng Wun, an economist at CIMB Private Banking in Singapore. “Government spending on infrastructure and growing employment in the services sector is helping to boost domestic consumption. Singapore is still facing headwinds amid slowing global demand.”

Currency Rises

Singapore’s dollar climbed 0.3 percent to S$1.4063 against the U.S. currency as of 8:56 a.m. local time.

The Singapore dollar’s nominal effective exchange rate remains “comfortably” within the policy band, the Monetary Authority of Singapore’s Deputy Managing Director Jacqueline Loh said at a briefing on Wednesday. Downside risks to growth are within the MAS’s planning parameters and the central bank’s policy remains appropriate and unchanged, she said.

The Singapore GDP revision for the third quarter was mostly due to wholesale trade, Trade and Industry Ministry Permanent Secretary Ow Foong Pheng said at the same briefing.

“For the rest of the year, Singapore’s GDP growth is expected to remain resilient amidst a challenging external environment,” the trade ministry said, adding that “sectors such as wholesale trade and finance and insurance are likely to continue to post modest growth, even as the manufacturing sector is expected to remain weak.”

Export Forecasts

The ministry trimmed its forecast for 2015 non-oil domestic exports growth to 0.5 percent to 1 percent, from a previous estimate of 1 percent to 2 percent. It sees non-oil shipments rising as much as 2 percent next year.

Singapore’s consumer prices fell for a 12th straight month in October and core inflation, which excludes the cost of transport and accommodation, slowed to 0.3 percent. While the Monetary Authority of Singapore has avoided characterizations of slowing growth and falling inflation as a deflationary environment, recent data has put pressure on the central bank to ease its exchange-rate policy further.

“The bottom line is that Singaporean growth is weak, the output gap is likely wider than thought, and headline deflation pressures are stronger than expected,” Glenn Maguire, an economist at Australia & New Zealand Banking Group Ltd., said in a note this week. "The persistence of downside risks to headline inflation will eventually pose downside risks to the core measure as well."

GDP rose 1.9 percent in the third quarter from a year earlier, after growing 2 percent in the previous three months, today’s data showed. The median estimate in a Bloomberg survey was 1.4 percent.

“We will see some support from domestic demand across Asia as governments spend more, but that should be viewed as an offset to slowing exports,” Michael Wan, a Singapore-based economist at Credit Suisse Group AG, said before the report. “The macro outlook for the U.S. and EU looks better, but this cannot completely offset the economic slowdown that we see in China.”

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