Economy grows 2.5% in first quarter, aided by strong manufacturing

With MAS sticking to its neutral monetary policy stance, the Singdollar policy band is on a path of zero appreciation against the currencies of key trading partners.
With MAS sticking to its neutral monetary policy stance, the Singdollar policy band is on a path of zero appreciation against the currencies of key trading partners.ST PHOTO: KUA CHEE SIONG

Singdollar policy unchanged as MTI's flash estimates indicate uneven showing across sectors

The brighter global outlook boosted Singapore's economy in the first quarter, with manufacturing and other trade-dependent sectors enjoying an uptick.

But not all industries are feeling as buoyant. Sentiment in the service and construction sectors remains muted, according to preliminary statistics released yesterday by the Ministry of Trade and Industry (MTI).

This uneven performance prompted the central bank to keep its Singapore dollar policy unchanged in its latest policy review, also released yesterday.

The economy expanded 2.5 per cent in the three months to March 31, according to MTI advance estimates, which take into account data from the first two months of the quarter. This was marginally slower than economists' estimates of 2.6 per cent growth.

The first quarter's modest pace of growth was boosted largely by a strong showing in the manufacturing sector, whose output rose 6.6 per cent over the same period a year earlier.

Manufacturing, which makes up one-fifth of the economy, is benefiting from a more positive global outlook and strong demand for electronics, especially semiconductors.

But there have been areas of weakness in the sector: The biomedical manufacturing, transport engineering and general manufacturing clusters all saw a slide in output in the first quarter, MTI data showed.

The service sector, which makes up two-thirds of the economy, grew 1.5 per cent, while construction shrank 1.1 per cent, weighed down by a slowdown in private- sector building.

"Over the last six months, the global economy has picked up and should continue to support Singapore's trade-related sectors. However, activity across the broader domestic economy is likely to be uneven, and overall growth in 2017 will remain modest," the Monetary Authority of Singapore (MAS) said in its policy statement.

In addition, while higher oil prices have pushed up Singapore's inflation rate in recent months, the labour market remains weak and the overall economic environment is still lacklustre.

This limits the extent to which companies can pass on higher costs to consumers, the central bank noted.

As a result, it kept its monetary policy stance unchanged.

MAS uses the exchange rate as its main monetary policy tool to strike a balance between inflation from overseas and economic growth.

The rate is allowed to float within a policy band that the central bank can adjust when it reviews monetary policy.

The Singdollar policy band is on a path of zero appreciation against the currencies of key trading partners - a neutral policy stance that was put in place last April.

This stance "is appropriate for an extended period" even amid modest improvements in both economic growth and inflation, MAS said in its policy statement.

Official forecasts tip economic growth of 1 per cent to 3 per cent this year, "not markedly different" from last year's 2 per cent expansion.

DBS economist Irvin Seah expects yesterday's first-quarter advance estimates for economic growth to be revised upwards when final numbers are released next month, largely due to the improving global outlook.

"That said, the turnaround thus far has been uneven and restricted to just a few clusters. The rest of the economy has yet to feel the uplift, and the labour market has also remained soft," he noted.

"Plainly, there is enough leeway for the MAS to maintain status quo on monetary policy for now, given the uneven pace of the recovery."

UOB economist Francis Tan agreed, adding that "unless economic conditions change drastically and beyond the central bank's expectations over the next six months", the status quo will likely also be maintained at the next policy meeting in October.

A version of this article appeared in the print edition of The Straits Times on April 14, 2017, with the headline 'Economy grows 2.5% in first quarter, aided by strong manufacturing'. Print Edition | Subscribe