Quick takes: Analysts on Singapore's Q3 GDP estimate and MAS' slight easing of Singdollar

Singapore dollar notes and coins.
Singapore dollar notes and coins.ST PHOTO: ONG WEE JIN

SINGAPORE - The Monetary Authority of Singapore (MAS) announced on Wednesday (Oct 14) that it will "slightly" slow the pace of appreciation of the Singapore dollar to revive economic growth.

At the same time as its announcement, the Government released advance estimates showing the Singapore economy narrowly escaped a technical recession by growing 0.1 per cent in the July to September period from the previous quarter. Year-on-year growth was 1.4 per cent, just topping economists' median estimate of 1.2 per cent. The manufacturing sector was the biggest drag on growth, contracting 6 per cent.

Here are some quick reactions from economists:

DBS economist Irvin Seah on GDP:

"The manufacturing sector remained in reverse gear. Amid the uncertain external environment, industrial activity has continued to back-pedal. The sector is already in recession, having contracted in the past four quarters in year-on-year terms and in three out of the past five quarters on a sequential basis. Industrial output has also declined in 10 out of the past 12 months, and near-term outlook doesn't seem to be improving."

OCBC Bank's head of treasury research & strategy, Selena Ling:

Our 4Q15 forecast is for a stabilization if not slight improvement in GDP growth to 1.9 per cent year-on-year, bringing full-year growth to an unchanged 2 per cent yoy. This is in line with the official growth forecast which was left steady at 2-2.5 per cent for 2015 as a whole, but with risks tilted towards the downside. There is unlikely to be any quick turnaround recovery theme in the manufacturing or regional growth story in the near-term. Note the MAS policy statement acknowledged that the overall global economic outlook has softened compared to the April review, and China's growth momentum is easing on a sharp deceleration in investment growth which will dim the growth outlook for Asia ex-Japan. As the recent global/regional PMI prints suggest, the services sectors will buffer some of the downside risks from manufacturing in 4Q.

Capital Economics on MAS move:

"The MAS statement makes clear why it did not take the more aggressive step of moving to a neutral slope or recentring the policy band to allow a one-off depreciation, which a number of analysts had expected.

First, the outlook for the economy is subdued but not a cause for panic. Growth is expected to come in at around 2 to 2.5 per cent both this year and next, which we think is close to the economy's potential growth rate.

Second, MAS agrees with our view that the slowdown in inflation over the last year largely reflects temporary factors, such as the fall in oil prices and an increase in healthcare subsidies, that will soon start to fade."

Mizuho economist Vishnu Varathan on MAS move:

"MAS unleashed half a surprise! While policy was eased as was widely expected it disappointed the majority call for step depreciation (of the Singapore dollar). But even our non-consensus slope flattening call half-missed the "slight" slope reduction; the second one this year! USD/SGD tumbled from low-1.40 to test near-1.39-figure before settling sub-1.40."

UOB on MAS move:

"The central bank's move is deemed a cautious one, as the impact of a reduction of the S$NEER slope will be spread over a longer term, rather than the more controversial outright downward shift in the midpoint, that was expected by us. With this 'slight' easing, it seems that the MAS wants to see the SGD appreciating at an even slower pace, and we still hold on to our view that the USD/SGD will likely end this year at 1.43."

Citigroup on MAS move:

"This decision thus will disappoint the consensus' more dovish expectations, but may keep alive the prevalent view that this cycle of policy easing is far from complete.... as growth challenges persist, and given that the MAS statement does not suggest an end to the easing cycle, we would not be surprised if the expected bounce in SGD turns out to be short lived."