Q3 economic growth likely to hit 3-year high

It may not be blue skies for long. Economists are cautious about the longer-term outlook, noting that electronics manufacturing - the brightest spot in the economy this year - might yet lose steam as export demand tapers off.
It may not be blue skies for long. Economists are cautious about the longer-term outlook, noting that electronics manufacturing - the brightest spot in the economy this year - might yet lose steam as export demand tapers off.ST FILE PHOTO

But pickup remains patchy and may yet lose steam, experts warn

The Singapore economy likely grew at its fastest pace in three years over the July to September quarter, buoyed by the surging manufacturing sector.

But economists are cautious about the longer-term outlook, noting that electronics manufacturing - the brightest spot in the economy this year - might yet lose steam as export demand tapers off.

In addition, growth has largely been coming from trade-dependent sectors, with local demand yet to pick up decisively.

Their comments come ahead of advance economic growth estimates for the third quarter due out later this week from the Ministry of Trade and Industry (MTI).

Official forecasts tip full-year economic growth of around 2.5 per cent, up from last year's 2 per cent.

Private-sector economist estimates for third-quarter economic growth range from about 3.5 per cent to slightly above 5 per cent year on year. This is well up from a 2.9 per cent expansion in the preceding three months and would also be the fastest quarterly expansion since 2014.

This is thanks largely to the manufacturing sector, which makes up a fifth of the economy and is being lifted by strong global demand for semiconductors and related equipment.

Factory output soared 11.2 per cent in the first eight months of the year - the highest since April 2011 and well above the 3.6 per cent for the whole of last year.

This has helped lift overall growth, with the effects gradually being felt in other segments of the economy, such as trade-related services.

"Services growth likely picked up further with the recovery broadening, particularly to financial, business, and wholesale and retail trade," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye, who expect third-quarter growth of close to 4 per cent year on year.

The MTI is likely to upgrade its forecast for full-year economic growth next month when more data becomes available, they added.

Other economists agreed that the outlook is slightly cheerier but warned that the recovery is still nascent and has been concentrated in a few sectors.

Bank of America Merrill Lynch economist Mohamed Faiz Nagutha noted that while economic growth has outperformed expectations so far this year, "the recovery remains patchy" and is "lacking momentum".

"While global electronics demand is expected to remain firm, the rapid inventory accumulation is likely to take a pause after the launch of new smartphone models in the second half of the year," he added.

This means growth could slow down next year as manufacturing returns to more sustainable growth rates. "More muted growth in 2018 is also consistent with our global economics teams shaving down their growth expectations for the United States and China next year," Mr Faiz said. He expects third-quarter economic growth to come in at 3.5 per cent.

UOB economist Francis Tan said growth has been patchy even within the manufacturing sector, with the semiconductors and precision engineering clusters doing most of the heavy lifting, while other segments, such as offshore and marine, remain weak.

In addition, while economic activity in some sectors is picking up, consumption and investment remain lacklustre.

"The cutback in corporate budgets, due to a combination of factors such as poor sentiments as well as expectations of higher interest rates, may add further pressure to bank loans to businesses, which may have started showing some signs of slowing down," noted Mr Tan, who expects third-quarter growth of 4.3 per cent year on year.

"The strength came only from pockets of Singapore's economy and has not trickled down to the rest of the sectors."

A version of this article appeared in the print edition of The Straits Times on October 09, 2017, with the headline 'Q3 economic growth likely to hit 3-year high'. Print Edition | Subscribe