Singapore Economy Gets Temporary Boost From Manufacturing

  • Growth in manufacturing, construction offset drop in services
  • Government now sees non-oil exports declining in 2016

Singapore’s economy performed better in the first quarter than the government had earlier estimated, led by a surge in manufacturing that may not be repeated as exports remain under pressure.

Gross domestic product expanded an annualized 0.2 percent from the previous three months, the Ministry of Trade and Industry in an e-mailed statement on Wednesday. That compares with the department’s April estimate of zero percent and the median forecast of 0.6 percent in a Bloomberg News survey of 12 economists.

Singapore is among the most vulnerable in Asia to swings in global demand. With the world economic outlook weakening this year, the boost to Singapore’s manufacturing last quarter, fueled mainly by pharmaceuticals, may prove to be short-lived.

“There’s not too much to get excited about here,” said Song Seng Wun, an economist at CIMB Private Banking in Singapore. “It’s better than initially expected, but the economy is still plodding around until we see a more meaningful pick-up in global demand.”

The government is projecting a decline in non-oil domestic exports of 3 percent to 5 percent this year, according to a separate report released by International Enterprise Singapore on Wednesday. That compares with a February projection of zero to 2 percent expansion.

Loh Khum Yean, permanent secretary at the Ministry of Trade and Industry, said the global economic outlook had worsened since February. He cited a possible drop in demand from China and faster-than-expected interest-rate increases in the U.S. as key risks for Singapore.

“Against this backdrop, the Singapore economy is expected to grow at a modest pace in 2016,” he told reporters.

The data justifies the central bank’s unexpected move in April to ease its policy stance, saying it won’t seek currency appreciation, CIMB’s Song said. Consumer prices have declined every month since November 2014.

The Singapore dollar gained about 0.1 percent to 1.3801 against the U.S. dollar as of 11:30 a.m. local time, while the Straits Times Index climbed 1.1 percent.

The government on Wednesday maintained its 2016 GDP growth forecast of 1 percent to 3 percent. The manufacturing sector expanded an annualized 23.3 percent in the first quarter, while construction grew 10.5 percent.

Services Slump

That was offset by a 5.9 percent plunge in the services sector, the biggest quarterly drop since the 2008-2009 recession. The finance and insurance industry contracted an annualized 15.2 percent, while wholesale and retail trade services dropped 10.3 percent.

“Despite some tentative improvement in growth momentum in March-April, risks are skewed to the downside,” Wei Zheng Kit, an economist at Citigroup Inc. in Singapore, said in a note to clients. If further disappointing data puts the central bank’s “implicit expectations” of 1.6 percent to 1.7 percent growth at risk, it may be prompted to ease policy again in October, he said.

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