In Focus
ECONOMY | Marianne Estioco, Singapore

Trouble lurks beneath Singapore's surprisingly strong growth numbers

Recession is not yet off the cards.

Singapore’s economy beat market expectations with a 1.8% year-on-year GDP growth in the first quarter, but analysts warn the unexpectedly robust growth figure is unlikely to be sustainable in coming quarters.

In particular, a closer look of the industry breakdowns show that Q1 output was supported by a one-off jump in pharmaceutical output, which drove a 18.2% quarter-on-quarter surge in manufacturing. The construction sector also booked a 10.2% quarter-on-quarter spike, on back of ongoing public and private sector non-residential construction activity.

“These gains masked underlying weakness in other manufacturing clusters and services. Stripping out construction and pharmaceutical output, which account for 20% of GDP, we estimate the rest of Singapore’s economy contracted at a 2.7% quarter-on-quarter seasonally adjusted pace,” said Philip McNicholas, ASEAN Economist at BNP Paribas.

Meanwhile, Deutsche Bank economist Diana del Rosario warned that worse-than-expected weakness in the services sector may have prompted the Monetary Authority of Singapore (MAS) to flatten the slope of its policy band, a move that was not anticipated by consensus expectations.

“It was the weakness in the services sector that prompted the MAS to contain the appreciation of the SGD, as it stands to dampen prospects of higher inflation. The MAS now expects core inflation to rise at a milder pace than earlier expected, barring a stronger recovery in oil prices,” she said.

A team of Citi economists led by Wei Zheng Kit noted that the slope flattening was likely done in anticipation of continued economic stagnation, and warned that odds are stacking up for a technical recession in the second quarter.

“The emphasis on downside growth risks suggests that at the very least, policymakers now see a greater chance that full year growth will fall in the lower half of the official forecast range of 1-3%. Indeed, the risk of technical recession in 2Q has likely increased materially, which may bring about an even sharper official forecast downgrade in August,” he said.

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