Singapore 2015 GDP picture 'belies swirling undercurrents': Economists

Office workers at Raffles Place.
Office workers at Raffles Place. PHOTO: ST FILE

SINGAPORE - The Singapore economy expanded by 2 per cent year-on-year (yoy) in the fourth quarter of 2015, and 5.7 per cent quarter-on-quarter (qoq), according to official advance estimates of gross domestic product released on Monday (Jan 4). For the full year, the economy grew by 2.1 per cent. Economists give their assessments of 2015 and look ahead to 2016:

DBS senior economist Irvin Seah: 2015 ended on a high note but risks remain

The economy ended 2015 on a high note. GDP growth in the fourth quarter was stronger than expected.

 

Once again, the service sector is in the driving seat. Growth is expected to register a solid 6.5 per cent qoq and seasonally adjusted annual rate (saar) (3.2 per cent yoy). Note this sector accounts for about two-thirds of the economy. A good showing from this sector will lift the boat. However, while this sector is known to be a resilient and stable engine of growth for Singapore, performance of the sector going forward will continue to be affected by the existing domestic manpower crunch and drag from the manufacturing sector.

Unsurprisingly, the manufacturing sector remains the weakest link. A contraction of 3.1 per cent qoq saar (-6.0 yoy) was reported. The manufacturing sector is in recession, having contracted in the past five quarters in year-on-year terms. Industrial output has also declined in eleven of the past twelve months.

Both cyclical and structural challenges are dampening the growth prospects of this sector. External competition, rising business costs and weak external demand were key challenges facing the manufacturing sector for the past years. And the outlook is expected to remain dicey judging from conditions in the external environment.

Although the economy has ended 2015 with a fairly healthy growth pace in the fourth quarter, overall GDP growth is still the slowest in six years. Moreover, risks remain in the horizon with potential capital flight that could result from further US rate hikes and/or fears of further deceleration in China.

Going forward, growth outlook in the next six to nine months will remain tepid before an improvement in the later part of 2016 can be expected. This should bring overall GDP growth for 2016 to 2.1 per cent.

ANZ Research: Firm GDP print belies swirling undercurrents

Today's firm advance GDP print belies a more mixed underlying picture of fluid and brittle drivers within the Singapore economy; indeed, the odds of a large downward revision in the final estimate due in February are significant.

Singapore is still confronted with twin headwinds externally and domestically. Manufacturing will continue to contract, with the city-state entrenched in a trade recession that is likely to persist through H1 2016 and this will have a knock on impact on externally-oriented sectors.

In addition to the cyclical headwinds, the externally-oriented sectors are also confronted with structural dynamics such as the re-configuration of regional supply chains, especially with China embracing vertical integration domestically.

Services outperformance remains the key support of economic growth, but the jury is out on the sustainability of its strength. For the financial services sector, further regulatory scrutiny and a deteriorating market environment with net interest margins under pressure, means that banks will have to be much more agile to the changing external environment to drive growth or risk of underperforming.