Sluggish start to Q1 likely to drag on: Economists

Office workers in the financial district of Singapore.
Office workers in the financial district of Singapore. PHOTO: REUTERS

Growth in quarter just 1.8% higher than same period last year due to slowing service sector

The Singapore economy had a slow start to the year and there is not much chance for improvement in the coming months, economists warned yesterday.

Growth in the January to March period was just 1.8 per cent higher than the same period a year ago, as the once-resilient service sector disappointed while the manufacturing recession dragged on.

Private-sector economists had been anticipating a slightly stronger expansion of 1.9 per cent but their forecasts were upset by a sharper-than-expected downward revision to growth in services. The sector expanded 1.4 per cent in the first three months of the year, the Ministry of Trade and Industry (MTI) said yesterday, worse than its earlier estimate of 1.9 per cent.

Noting that the slump in manufacturing is now affecting the service sector, UOB economist Francis Tan said: "Although the service sector continued to hold up economic growth, it grew at the slowest pace since the financial crisis in 2009."

Weaker global demand also hurt the wholesale and retail trade sector, which expanded 1.8 per cent in the first quarter from the same period a year ago, the smallest increase in two years.

The finance and insurance sector grew 2.4 per cent from a year ago, a 15.2 per cent contraction from the previous quarter, and growth could continue to moderate, said the MTI.

DBS economist Irvin Seah said he began to worry once he saw bank lending in March shrink at a rate not seen since 2000: "The financial sector has been the key driver of growth over the past three years, accounting for about one-third of gross domestic product growth.

"With the biggest engine of the economy slowing down, growth has indeed weakened."

Notably, factory output in the first three months of the year contracted just 1 per cent, better than the 2 per cent decline estimated by the MTI last month, after a late surge in biomedical output.

Conditions for manufacturers as a whole will remain "challenging", said the MTI, though it singled out biomedical manufacturing as one of a few growth clusters.

But drug production is prone to huge swings from month to month and cannot reliably lead factory activity out of a slump, said Mr Seah.

"If we strip out the biomed cluster, the manufacturing cluster would have contracted 5.7 per cent from a year ago, instead of 1 per cent, and the economy would have recorded year-on-year growth of 1 per cent instead of 1.8 per cent.

"Once the boost from biomedical fizzles out, we will see the real picture - the manufacturing sector is not really improving at all."

The MTI told a briefing yesterday that its outlook for global growth has softened since February, noting that China's economic reforms could trigger a sharper slowdown while a United States interest rate hike could prompt large capital outflows from regional countries.

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A version of this article appeared in the print edition of The Straits Times on May 26, 2016, with the headline 'Sluggish start to Q1 likely to drag on: Economists'. Print Edition | Subscribe