Analysts' comments on Singapore Q3 GDP data and economic survey

Credit Suisse Economics on October inflation data:

The October headline consumer price index (CPI) inflation surprised significantly on the downside, coming in at just 0.1% yoy compared with the Bloomberg consensus of a 0.6% yoy gain and Credit Suisse's estimate of 0.5% yoy. MAS core inflation also came in lower than expected, rising 1.7% yoy from 1.9% yoy, previously.

In addition to the weak property and car market, several other factors contributed to the softer-than-expected figures, in our view:

1. weaker oil prices;

2. The Pioneer's Generation Package subsidies, which continued to depress healthcare costs; and

3. larger-than-expected impact from housing conservancy rebates dished out in the month.

We will in all likelihood see the headline inflation rate fall into negative territory over the next few months to around -0.1 to -0.2% yoy.

However, we doubt that this will materially raise concerns over deflation by the MAS. The sources of disinflation have been relatively benign thus far. From a policy forecasting perspective, we continue to see high hurdles for an easing of exchange rate policy, with the tight labour market still being the chief binding constraint.

DBS Group Research:

The economy grew 2.8% YoY, which is much in line with our expectation. This is up from 2.4% YoY as indicated in the advance GDP estimates reported last month. This upward revision can be attributed to two key factors - a better than expected September industrial production growth and a significantly stronger showing from the services sector.

With a less than expected drop for September, overall manufacturing growth in 3Q14 turned out higher than originally predicted.

However, the main boost came from a massive upward revision in services sector growth. While the revision did not come as a surprise to us, the magnitude of the adjustment was much more than anticipated. Growth for this sector

was raised to 3.4% YoY, up sharply from 2.9% projected in the advance figure.

Note that the advance GDP estimate has a tendency to under-estimate services growth. More importantly, while business activities may have been affected by the labour shortage, outlook in the service sector has largely remained buoyant.

Construction growth came in slightly stronger too. Growth was raised to 1.7% YoY, from 1.4% previously. Despite the revision, outlook for this sector remains cloudy. Margin compression, labour crunch and a cooling property market will continue to weigh down on growth performance for this sector.

Our full year GDP growth forecast remains at 3.0%, which is exactly smack in line with the revised official forecast. In addition, the government is now expecting growth to come in within 2-4% in 2015. We have a forecast of 3.6% penciled in for GDP growth in 2015.

Ms Selena Ling, Head, Treasury Research & Strategy, OCBC Bank:

"The Q3 GDP growth estimates was revised more than expected from the flash +2.4% year-on-year (yoy) to 2.8% yoy, above our forecast for +2.5% yoy. Meanwhile, 2Q14 GDP growth was also adjusted marginally lower from 2.4% yoy to +2.3% yoy.

For manufacturing, growth momentum did improve slightly from 1.5% in 2Q to 1.9% yoy in 3Q, while both services and construction also clocked in higher at 3.4% (previously estimated at 2.9%) and 1.9% (previous estimate 1.4%). Notably, financial services was the key outperformer at 10.5% yoy in 3Q, nearly double the 2Q pace of 5.5% yoy and lifted mainly by financial intermediation and insurance, whereas the transport and storage sector saw marginal expansion at 0.1% as water and air transport segments dragged. Nevertheless, NODX finally reverted to positive growth at +1.1% yoy in 3Q, the first time since 2Q12. IE Singapore tips NODX growth at 1-3% in 2015, up from the 1-1.5% contraction expected for 2014.

The official growth forecast stands at around 3% yoy for 2014 and 2-4% for 2015, which is in line with our 3% yoy and 3-4% forecasts respectively. The 2015 outlook remains predicated on a modest but global growth pickup and a tight domestic labour market which will translate into a modest growth trajectory for the Singapore economy.

A familiar litany of risks was also highlighted, namely a potential deflationary spiral in the Eurozone, unexpected tightening of monetary conditions in the US, a sharper-than-expected slowdown in China due to the real estate market, geo-political tensions and a global Ebola outbreak. This suggests that the policy outlook is likely to remain watchful but not overly bearish in our view.