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Analysts are having nightmares over Singapore's services sector
3Q figures didn't improve from the 1.2% expansion in 2Q as wholesale & retail and finance & insurance subsectors drag.
Singapore’s 3Q GDP grew 1.1% y/y, a markedly lower rate of growth from the 2.0% y/y growth registered in the first half of this year. On a q/q SAAR basis, 3Q GDP contracted 2.0%, a reversal from the 0.1% growth in 2Q (although it is better than the advance estimates of a 4.1% decline).
According to UOB, on the expenditure-side of GDP, private consumption expenditure grew only 0.6%, the slowest growth since the sustained slowdown that started in 4Q 2015. This is possibly a result of the weaker real wage growth and less-tight labour market, and evident in the contraction in Singapore’s retail sales numbers over the past year. Faced with the onset of poorer economic prospects and job market, weaker consumer confidence had resulted in a collective “tightening your belt” situation amongst residents.
"What worries us is the performance of the services sector, which contributes around 68% of GDP. This sector recorded flat growth in 3Q, moderating from the 1.2% y/y expansion in 2Q. Although the “domestic services sectors” such as other services sectors (+2.3% y/y), information & communications (+2.2% y/y), and accommodation & food services (+2.1% y/y) performed relatively better, our worries hover around the fate of externally-driven services sectors such as wholesale & retail (-1.5% y/y) and finance & insurance (-0.7% y/y)," it said in the report.
Another worrisome factor is the 2.7% contraction in gross fixed capital formation, as it reflects that businesses were also a lot more cautious about spending money for the future, as they may find it pointless if demand is weak.
"We hope that this does not start the vicious cycle where lower investments today results in lower potential GDP growth in the next period. But should external demand remains weak and there is no significant government intervention, this could well be the case," it added.
On the industry-side of GDP, the manufacturing sector grew 1.3% y/y (-9.1% q/q SAAR), led by a resurgence in the growth from the electronics and precision engineering sectors. That translates to a 0.2% point growth contribution to overall GDP. The construction sector gained 1.6% y/y (-0.8% q/q SAAR), supported by growth in public sector construction works.
Here's more from UOB:
The only constant this year was the downward revision of GDP growth forecast. As a reflection from the 3Q numbers released, the weak external demand that had bugged us since 2014 is no longer just impacting externally-oriented industries such as the manufacturing sector (which in contrast, is experiencing some cyclical uptick in part due to a low base effect), but had infiltrated into the domestic sectors too.
Indeed, although the charting of long term economic strategies and implementation of structural reforms to the economic value chain is important for the long term survival and competitiveness of Singapore (as evident from the strategies put forth during Budget 2016), we think that with our monetary policy floored at current levels (a neutral SGD NEER policy), both the businesses and labour market will require more short term, targeted measures to survive this difficult period.
The Ministry of Trade and Industry narrowed their 2016 GDP growth forecast to 1.0% to 1.5%, from 1.0% to 2.0% previous, and expects 2017 GDP to grow 1.0% to 3.0%. We maintain our GDP growth of 1.4% in 2016 and expect 2017 GDP growth to come in at 1.8%.
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