Singapore’s Growth Beats Estimates With Headwinds Remaining

(Bloomberg) -- Singapore provided a report card on its economy that beat analyst forecasts in one of Asia’s earliest growth estimates, as improving services and construction countered faltering exports. It may be too early to celebrate.

Gross domestic product rose an annualized 5.7 percent in the three months to Dec. 31 from the previous quarter, when it expanded a revised 1.7 percent, the trade ministry said in an advance estimate on Monday. The median of nine estimates in a Bloomberg News survey was for a 1 percent expansion. The economy grew 2.1 percent last year, the slowest pace in six years.

Singapore’s export-oriented economy, always vulnerable to global swings in demand, reflects the threat China’s slowdown poses for the region. The island’s largest export destination is tipped to expand at the slowest pace in 25 years, and the first Chinese economic reports of 2016 signaled manufacturing weakened for a fifth straight month. Domestically, home prices posted their longest losing streak in 17 years last quarter and a labor crunch could cap further gains in services.

"There could be high odds of a downward revision come February," said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., referring to final GDP figures due next month. "Given that the outperformance for this quarter happens to be in the services sector, it could be rather transient. Singapore remains confronted with twin headwinds externally and domestically."

The Singapore dollar traded at 1.4226 against the U.S. currency as of 11:25 a.m., compared with 1.4185 on Dec. 31. Singapore markets were closed for New Year’s Day on Jan. 1. The Straits Times Index fell 1.5 percent.

Advance Figures

Monday’s data are advance estimates computed largely from figures in the first two months of the quarter, according to the trade ministry. It’s “intended as an early indication of the GDP growth in the quarter, and are subject to revision when more comprehensive data becomes available,” a trade ministry spokesperson said Monday in response to e-mailed questions. This is standard practice among statistics agencies worldwide, the spokesperson said.

There has been a difference of 4.3 percentage points on average between the advance and final readings of Singapore’s GDP growth since the start of 2010, based on annualized quarter- on-quarter data compiled by Bloomberg. The difference is a narrower 1 percentage point for U.S. GDP and 1.6 percentage points for Japan’s.

Singapore faces challenges including fiercer competition in a globalized world, Prime Minister Lee Hsien Loong said in his New Year message on Dec. 31. The economy is "slowing down and undergoing transition," he said.

GDP grew 2 percent in the fourth quarter from a year earlier, compared with a median survey estimate for 1.2 percent.

Services Support

Singapore’s manufacturing fell 3.1 percent last quarter from the previous three months, the trade ministry said. The services industry grew 6.5 percent in the same period, while construction expanded 7 percent.

The Southeast Asian nation has relied on its position as an Asian financial hub to bolster services as overseas demand for its goods faltered. While industrial production fell for a 10th straight month in November, retail sales rose for a ninth month in October.

“Once again, the service sector is in the driving seat,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, wrote in a note. “However, while this sector is known to be a resilient and stable engine of growth for Singapore, performance of the sector going forward will continue to be affected by the existing domestic manpower crunch and drag from the manufacturing sector.”

Easing Expectations

The Monetary Authority of Singapore eased its exchange rate policy for a second time last year in October, saying weakening prospects for global growth would pose "headwinds" in the coming months. Singapore’s consumer prices fell in November from a year earlier for a 13th straight month in the longest streak of declines as a renewed slump in oil prices threatens to delay a recovery in inflation.

The island’s home prices dropped for a ninth quarter in the three months ended Dec. 31 as tighter mortgage curbs cooled demand in Asia’s second-most expensive housing market. An index tracking private residential prices fell 0.5 percent last quarter from the previous period, according to preliminary data released Monday, taking the annual decline to 3.7 percent.

“I think the bar for further easing has been set quite high by MAS," said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “However, if I’m right that the headwinds to growth will intensify as we move into 2016, I think market expectations for easing will rise as we move into the next few months.”

--With assistance from Myungshin Cho, Sebastian Tong, Iain McDonald, Jeanette Rodrigues and Masaki Kondo.

To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Iain McDonald