Singapore forecasts lower than expected Q3 GDP growth

Though posted a lackluster growth in the last three months of 2009, the Singapore government looks forward to an economic rebound in 2010, according to HSBC.

Singapore's third quarter GDP was revised lower from the provisional release, albeit a touch less than the consensus had anticipated. At 14.2% on a quarter-on-quarter seasonally adjusted annualised basis (14.9% originally), following a 21.7% annualised rise in Q2, the recovery could hardly be described as poor, as stated in a report issued by HSBC.

In the space of six months, the Singapore government reported that the economy has grown by 8.6% in non-annualised terms, making up all but 2% of the output lost during the recession. This is the strongest bounce the economy has ever seen since the quarterly data began in the mid-1970s. In year-on-year terms, Q3 GDP growth was revised from +0.8% to +0.6%, following a low of -9.5% in 2009Q1.

The output breakdown of Q3 GDP showed downward revision to year-on-year manufacturing growth (6.6% from the provisional 8.3%) but smaller upward adjustments to construction (12.8% from 12.4%) and services (-2.2% from -2.4%).

Within services, wholesale & retail continue to report the largest year-on-year falls (-7.5%), while financial services dropped just 0.2%, having contracted 4.5% in Q2.

Forecasts for 2009Q4 and 2010
Together with the release is a new set of forecasts published by the government. For 2009 as a whole, Singapore economy stuck to a range of -2% to -2.5%, which suggests that it expects GDP to be at best flat on a quarter-on-quarter basis in the final quarter of this year.

For this HSBC estimates that to get an annual average growth rate of -2% would require zero growth in Q4, while GDP would need to fall by about 8% on annualised basis in Q4 to get -2.5%. Although still improbable, a flat to negative quarterly GDP number in the final three months of this year is not impossible given the latest set of industrial production, retail sales and export data, all of which have contracted. However, HSBC assumes that services will improve.

Also, the government's first forecast for 2010 puts growth at 3-5%. However the cautious tone in last month's MAS policy statement prompts HSBC to anticipate that the actual figures would be lower, with the government suggesting that it expected GDP growth in the first half of next year to be “fairly strong", with no return to "recessionary conditions", while the "outlook for the second half was more uncertain". It was pointed out that a "conservative" view of US prospects had been taken and that new capacity would boost biomedical output in 2010, with tourism gaining as a result of the two new Casino resorts (both of which will open next year). Though not as low as Malaysia's ultra-conservative 2-3% number, HSBC, however, sees significant surge in both countries. HSBC forecasts 6.5% growth in Singapore next year and 6.8% in Malaysia.

Moreover, the forecast range for next year's inflation was revised up to 2.5-3.5% from 1-2% previously. The Ministry of Trade indicated this reflected a much higher assumption concerning the annual revaluation of housing values. HSBC forecasts 2.5% average inflation, although an upward adjustment for the same reason is also expected.

“Overall, we think the government is right to effectively highlight the risk of a weak 2009Q4 GDP number, although there is still a long way to go before we can come to a firm judgment as to just how soft it will be,” HSBC said.

“It is worth noting that even if total output were to be flat on a quarter-on-quarter basis in Q4 and throughout 2010, GDP would still register +2.9% average growth next year thanks to the strong 2009Q3 number which sets a good base for 2010.”

HSBC expects the government to revise next year's growth projections significantly over time and, although not a high-conviction call at this stage, the MAS will probably return to a policy of "modest and gradual currency appreciation" in April.