Economists had already braced themselves for lacklustre second quarter growth numbers but the latest data managed to startle even the gloomiest among them.
The Singapore economy grew just 1.7 per cent from April to June over the same period last year, according to advance estimates from the Ministry of Trade and Industry (MTI). This was the slowest rate of expansion since the third quarter of 2012. It was also significantly below the 2.6 per cent tipped by economists and lower than the 2.8 per cent logged in the first three months of the year.
The disappointing showing has prompted some economists to downgrade their forecasts for full year growth and raised the possibility that the central bank might act to ease monetary policy when it next meets in October.
Yesterday's numbers from the ministry showed that the manufacturing sector contracted 4 per cent over the same quarter last year, largely due to a fall in output in the biomedical manufacturing and transport engineering clusters.
Thiswas the sector's third consecutive quarter of declining output, and economists are divided over whether the situation will improve in this half of the year.
HSBC economist Joseph Incalcaterra said external demand remains weak, particularly in Singapore's largest trading partner China, where growth has moderated significantly. However, Barclays economist Leong Wai Ho noted that growth in the United States pickedup in the second quarter and is expected to support a recovery in Singapore's electronics output in the coming months.
Tepid global growth was also a drag on the services sector, which grew 3 per cent over last year,moderating from the 4.2 per cent expansion logged in the preceding quarter.
This was largely due to slower expansion in the wholesale and retail trade and business services sectors, as well as a contraction in the transportation and storage sector.
The construction industry grew 2.7 per cent, supported by strong growth in public sector building.
This was up from the preceding quarter's 2.1 per cent growth.
UOB's Mr Francis Tan was among the economists who downgraded forecasts for the full year following yesterday's data. He now expects the economy to grow 2.5 per cent this year,down from an earlier forecast of 2.9 per cent. This takes into account the economy's weak showing in the first half of the year and an ''increase in uncertainties in the trade sector'', MrTan said.
Bank of America Merrill Lynch economist Chua Hak Bin said the Government is likely to narrow its forecast range for full-year growth to 2 to 3 per cent, from the current 2 to4 per cent.
''The global outlook remains challenging and far less positive than the picture MTI painted in April. China's slowdown, the Greece crisis and weaker growth in the immediate neighbourhood of South-east Asia, including Indonesia, Thailand and Malaysia, will likely dampen growth,'' he added.