Why a massive upwards revision is on the cards for Singapore GDP

Economy likely to have expanded by 1.7%.

According to DBS, a massive upward revision in 4Q13 GDP (due Thursday) is in the making. The economy will likely have expanded by 1.7% QoQ saar (5.5% YoY).

Here's more:

This is significantly stronger than the prediction put forth in the official advance GDP estimates of a contraction of 2.7% QoQ saar (4.4% YoY).

And the reason for that is an upside surprise in the industrial production in December. Headline in- dustrial production index for December posted a robust expansion of 6.2% YoY when consensus was expecting a contraction of about 1.4%. The outperformance was mainly driven by simultaneous surges in output from the biomedical and electronics clusters.

Well, that’s the amazing nature of this economy. It’s small, open and extremely volatile. A sudden burst of output from any one or two industries will change the outcome of the entire ballgame alto- gether. In absolute index basis, this is the highest level of industrial output since Mar08! And production number for the previous month has also been revised signifi- cantly higher.

So what does that imply? Well, manufacturing growth for the fourth quarter will now be revised to 7.0% YoY instead of 3.5% reported pre- viously in the advance estimate. Yes, that’s a doubling of the manufacturing growth number. More importantly, the GDP growth figures for 4Q13 will see some massive up- ward revisions.

Once again, the earlier projection of a contraction of 2.7% QoQ saar will get revised to an expansion of about 1.7%. That’s a full 3%pt revision! In year-on-year basis, it’ll be 5.5% YoY rather than 4.4% for the quarter. That’s a full percentage point higher. So, this will effectively bring full year GDP growth closer to 4.0% rather than the earlier official estimation of 3.7%.