SINGAPORE: As manufacturing continued with its strong showing, Singapore’s economy got a further lift in the first quarter from an improvement in the services sector, fuelling further certainty of broadening growth beyond trade-related industries.
Data from the Ministry of Trade and Industry (MTI) released earlier on Thursday (May 24) showed the economy logging a better-than-expected 4.4 per cent growth over the January to March period.
AdvertisementThe manufacturing sector remained the key growth driver, extending its expansion streak with year-on-year growth of 9.8 per cent.
But the icing on the cake came in the form of a pick-up in the services-producing industries, which grew 4.1 per cent year-on-year, up from 3.5 per cent in the fourth quarter of 2017. All services segments expanded during the first three months of 2018, with the finance and insurance segment as the star performer as growth quickened to 9.1 per cent from 6.3 per cent.
MTI permanent secretary Loh Khum Yean told reporters at a media briefing that while weak spots remained, growth improvements “are gradually spreading out to the rest of the economy”.
This has made at least one economist turn more bullish on the outlook ahead.
AdvertisementAdvertisementMaybank Kim Eng economist Chua Hak Bin on Thursday upgraded his full-year GDP forecast to 3.5 per cent from 3.1 per cent, “to reflect the stronger services uplift and more modest manufacturing slowdown”.
“We expect continued resilience in outward-oriented services and firmer recovery in domestically-oriented services, which will help offset the easing in manufacturing and trade,” he said.
While other economists are standing pat on their estimates for now, they agree that the services sector looks poised to make up for lost ground when manufacturing growth eventually tapers due to less favourable base effects.
DBS senior economist Irvin Seah said services will be the “main impetus” for growth in the coming quarters as high frequency data on services, such as loan growth and financial market turnovers, continue to increase.
“While growth in the manufacturing sector will moderate as global economic conditions normalise, the strength in the services sector is likely to persist, thanks to positive spillover from the global recovery to the domestic sector.”
Growth spurred by healthy external demand has also broadened beyond outward-oriented services sectors, such as finance and insurance, to domestically-oriented service sectors like retail and food services, said OCBC's head of treasury research and strategy Selena Ling. This will bode well for GDP growth to sustain for the rest of 2018, she added.
Taken together, this has given the Government confidence to slash the lower end of its growth forecast to a range of 2.5 per cent to 3.5 per cent, an upgrade from the previous estimate of 1.5 per cent to 3.5 per cent, said CIMB Private Bank economist Song Seng Wun.
“It’s been so far so good this year and that has given them confidence to, at least, cut out a low-growth scenario.”
SPEED BUMPS?
Economists also reckon that the construction industry, which has thus far continued to languish, may see better days by the end of the year.
The ongoing collective sale fever and broad-based pick-up in the residential property segment will be driving factors, said Mr Seah, who added that the turnaround in the quarter-on-quarter seasonally adjusted growth figure after four consecutive quarters of contraction is a “clear sign that the worst is over”.
Still, risks linger ahead - the simmering trade tensions between the world’s two largest economies, among them.
“Despite selective imposition of tariffs on steel and aluminium, there hasn’t been a significant impact because these make up only a small proportion of global trade. Besides, so far it’s just been talk,” said Mr Song. “But, these can still have some impact on business and consumer confidence.”
The other risk that has emerged on the radar is the spike in global oil prices. A combination of factors, including the economic and political crisis in Venezuela, has shored up oil prices.
On Thursday, US West Texas Intermediate (WTI) crude futures were last seen at US$71.74 a barrel, while international benchmark Brent futures traded at US$79.65 per barrel.
“Although it doesn’t have the same drag on economic activities as it used to 30 years ago, higher energy costs will still inevitably have some marginal drag on economic activities,” he added.
Echoing that, UOB economist Francis Tan said cost-pushed inflationary surprises due to rising global oil prices could result in tighter global financial conditions as central banks turn more hawkish.
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