MTI trims growth forecast despite stronger Q3 data

Full-year growth now expected to be close to 2%; it also warns of mixed outlook for 2016

Singapore's economy grew 1.9 per cent in the July-to-September quarter over the same period a year earlier. ST PHOTO: ALPHONSUS CHERN

Singapore's economy performed better than previously estimated in the third quarter, but it is too early to break out the champagne.

Despite the stronger showing, the Ministry of Trade and Industry (MTI) has trimmed its full-year economic growth forecast and warns of a mixed outlook for next year.

The economy grew 1.9 per cent in the July-to-September quarter over the same period a year earlier - slightly up from an earlier official estimate of 1.4 per cent, and decisively escaping a technical recession.

Growth in the third quarter was supported mainly by service industries such as wholesale trade, while the manufacturing sector faltered amid lacklustre overseas demand.

Manufacturing, which makes up a fifth of the economy here, contracted 6.2 per cent over the corresponding quarter a year earlier.

MTI now expects economic growth to come in at "close to 2 per cent" for the whole of this year, a little less upbeat than an earlier forecast of between 2 and 2.5 per cent.

Sluggish global economic conditions have been a drag on growth, MTI noted. Singapore's economy grew 2.2 per cent in the first three quarters of this year, slower than the 3.2 per cent expansion in the same nine months last year.

IE Singapore yesterday also cut its forecast for non-oil domestic export growth this year. Shipments are now expected to grow 0.5 to 1 per cent, down from the previously estimated range of 1 to 2 per cent.

Non-oil domestic exports - the main gauge of shipments - are forecast to expand zero to 2 per cent next year, the trade agency said.

While global growth is likely to improve next year as the United States and euro zone recover, this is not expected to translate into a significant lift for Singapore and its regional neighbours, said MTI permanent secretary Ow Foong Pheng. This is because much of the pickup in these economies is expected to be domestically driven.

China's economy is also slowing, and the trend of "in-sourcing" in China and the US will weigh on Singapore manufacturers. Firms here also face a tight labour market and rising costs. These factors point to a "modest" growth outlook for Singapore going into next year, with the economy forecast to grow between 1 and 3 per cent next year, Mrs Ow added.

Economists were surprised by the better-than-expected third- quarter data, but cautioned against over-optimism. OCBC economist Selena Ling said the economy is running on "two gears", with stronger sectors such as finance and insurance making up for weaker showings in industries such asretail and food services.

HSBC economist Lim Su Sian said MAS is unlikely to make further shifts to monetary policy based on this data, barring major shocks: "Unless growth falls off a cliff in the fourth quarter - an unlikely scenario - full-year growth, moderate as it is, will still be coming in within the Monetary Authority of Singapore's expectations."

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A version of this article appeared in the print edition of The Straits Times on November 26, 2015, with the headline MTI trims growth forecast despite stronger Q3 data. Subscribe