Why an upside surpise is on the cards for Singapore economy

The market has got it all wrong.

An upside surprise is expected in 1Q14 advance GDP estimates due next Monday. The market is expecting a marginally slower pace of expansion in the economy, at 5.4% YoY, down a tad from 5.5% in the previous quarter.

On a sequential basis, growth impetus is expected to slow markedly to a mere 0.6% QoQ saar, from 6.1% in 4Q13. However, DBS believes the market will be in for a pleasant surprise.

Here's more:

We expect the headline GDP growth to report an expansion of 5.8% YoY, which implies a still healthy clip of 2.5% QoQ saar.

Essentially, while growth momentum within the manufacturing sector will likely moderate, the services sector is expected to pick up the slack. Growth in the services sector will likely have accelerated on strong trading activity within the financial markets and pick-up in intra-regional trade.

The Monetary Authority of Singapore (MAS) will convene its policy review on the same day as well. The MAS is expected to continue its exchange rate policy stance of a gradual appreciation of the Sing NEER.

Possible spike up in inflation in the coming months on wage pressure as well as a fairly healthy pace of economic growth essentially call for a continued tightening bias in the monetary policy.

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