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economy watch

Important indicators have stabilised in recent months

Is 2017 poised to be better?

All eyes will be on the 30-member Committee on the Future Economy to keep the economy on track in the Year of the Rooster.


n interesting fact about Singapore’s economy is that its data is one of the most volatile in the region, due largely to its manufacturing base which can be expanding one month and contracting the next. This makes it hard to gauge what is really happening, especially outside of the manufacturing or export sector. Still, the numbers painted for 2016 were not good: the services sector contracted for the third consecutive quarter in Q3, and the business expectations index continues to point to modest contraction, notes HSBC economist Joseph Incalcaterra. The one positive sign that we may be at the bottom is that container throughput and bank lending, two important indicators for the economy

The services sector contracted for the third consecutive quarter in Q3, and the business expectations index continues to point to modest contraction.

Can the bottoming out of exports be sustained?

Source: CEIC, Haver Analytics, and Deutsche Bank


that reflect trade volumes and financial activity, have stabilised in recent months, he adds. Meanwhile, Deutsche Bank economist Diana del Rosario says the economy posted the worst sequential contraction in Q3 since December 2012. What are the highlights? One of the main growth drivers in recent years has been the expansion in the finance & insurance sector, notes Incalcaterra. “However, to date yoy growth is roughly flat, even assuming a sequential boost in 4Q, compared to 5.4% growth in 2015. Whilst domestic credit and liquidity conditions have stabilised, offshore lending is down, and we expect only modest growth next year (2017).” He says the key revision in Q3

came from manufacturing, where strong electronics output offset the sharp drop in pharmaceutical production and marine engineering. Despite HSBC’s more constructive view on the US economy, business investment may not rebound sufficiently to meaningfully lift Asian trade. Deutsche Bank cautions that domestic lending continued to contract, but at a more gradual pace in September, down by 0.5% yoy against -1.3% yoy in August and -1.5% yoy in July. Industrial production surged 6.7% yoy from 0.5% yoy in the previous month on the back of a strong outturn in biomedical manufacturing and electronics clusters. Singapore’s manufacturing PMI recorded marginal expansion, at 10bps above 50, for the first time in 15 months. The 2017 outlook The MTI released a 2017 forecast range of 1-3%, which is the same as the original 2016 forecast, but HSBC’s Incalcaterra believes that this forecast range doesn’t leave much room for the materialisation of downside risks to growth stemming from weak global demand and the coterminous decline in trade volumes – to which Singapore is particularly sensitive. To keep the economy on track in 2017, all eyes will be on the Committee on the Future Economy (CFE), a 30-member committee made up of representatives from various industries, coordinated by the government. The purpose is to come up with recommendations to help Singapore remain competitive, and Incalcaterra says policy recommendations will likely be incorporated in the FY2017 budget.

Material revision of prelim Q3 GDP growth is unlikely

Source: CEIC and Deutsche Bank

Singapore Business Review (December 2016 - January 2017)  
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