Singapore Q2 growth comes in below expectations at 3.8%

Flash data points to slowing economy but economists sticking to full-year forecasts

While advance second-quarter growth figures out yesterday were robust, they also signal that the economy may be gradually moving into a slower lane.

Growth was estimated at 3.8 per cent over the same quarter last year, weaker than economists' expectations of a 4.1 per cent expansion.

It was also slower than the 4.3 per cent year-on-year growth recorded in the first quarter.

Analysts will likely be more focused on estimates showing that the economy grew only 1 per cent from the first to the second quarter, a markedly slower pace than in the previous three months.

Yet, while the numbers point to a slowing economy, economists are largely sticking to their full-year growth estimates, despite looming speed bumps of trade tensions and new property cooling measures.

Yesterday's Ministry of Trade and Industry (MTI) estimates give some hints of which sectors might be speeding up or slowing down.

Manufacturing remained the economy's key driver with growth of 8.6 per cent over the second quarter last year, down from 9.7 per cent in the first quarter.

But the quarter-on-quarter numbers tell a more sober tale: Manufacturing shrank 0.1 per cent from the first three months of the year.

That is a stark reversal from the 21.3 per cent growth from the last quarter of 2017 to the first quarter of this year.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye feel manufacturing growth has likely peaked, in part due to weak electronic exports. They expect expansion to ease into the low single-digits in this half of the year, as electronics demand dips and businesses bunker down in the face of trade frictions.

Construction has been a drag since 2016 and remains so due to weak private sector building.

It fell 4.4 per cent from the second quarter last year, although that bettered the previous quarter's 5.2 per cent slip. It also dived 14.6 per cent from the first to the second quarter.

The service sector could prove the elixir over the next few quarters. It grew 3.4 per cent year on year, down from 4 per cent in the first quarter, but recorded significant expansion from the first quarter. OCBC economist Selena Ling said: "Increasingly, services growth is expected to serve as the bulwark for growth going into the second half of the year."

Dr Chua and Ms Lee expect overall gross domestic product (GDP) performance to be upgraded when the final figures are out in the middle of next month, noting that "MTI's advance GDP estimate tends to be more conservative".

Most economists are sticking to their full-year forecasts. RHB Research still tips 3 per cent, while Maybank's Dr Chua and Ms Lee have kept to their 3.5 per cent.

BMI Research has even raised its forecast to 3.3 per cent from 3 per cent, but warned: "We believe that the economy will continue to face headwinds from the trade conflict, a weak construction sector and rising interest rates."

A version of this article appeared in the print edition of The Straits Times on July 14, 2018, with the headline 'S'pore Q2 growth comes in below expectations at 3.8%'. Print Edition | Subscribe