Singapore: 3Q17 economic growth likely to hit 3-year high

• The Singapore economy likely grew at its fastest pace in three years over 3Q17, buoyed by the surging manufacturing sector.
• But economists are cautious about the longer-term outlook, noting that electronics manufacturing – the brightest spot in the economy in 2017 – might yet lose steam as export demand tapers off. In addition, growth has largely been coming from trade-dependent sectors, with local demand yet to pick up decisively.
• Private-sector economist estimates for 3Q17 economic growth range from about 3.5% to slightly above 5% y/y. This is well up from a 2.9% expansion in the preceding three months and would also be the fastest quarterly expansion since 2014.
• This is thanks largely to the manufacturing sector, which makes up a fifth of the economy and is being lifted by strong global demand for semiconductors and related equipment.
• Factory output soared 11.2% in the first eight months of the year – the highest since Apr 11 and well above the 3.6% for the whole of 2016.
• This has helped lift overall growth, with the effects gradually being felt in other segments of the economy, such as trade-related services.
• “Services growth likely picked up further with the recovery broadening, particularly to financial, business, and wholesale and retail trade,” said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye, who expect 3Q17 growth of close to 4% y/y.
• Bank of America Merrill Lynch economist Mohamed Faiz Nagutha noted that while economic growth has outperformed expectations so far in 2017, “the recovery remains patchy” and is “lacking momentum”.
• “While global electronics demand is expected to remain firm, the rapid inventory accumulation is likely to take a pause after the launch of new smartphone models in the 2H17,” he added.
• This means growth could slow down in 2018 as manufacturing returns to more sustainable growth rates. “More muted growth in 2018 is also consistent with our global economics teams shaving down their growth expectations for the United States and China in 2018,” Mr Faiz said. He expects 3Q17 economic growth to come in at 3.5%.

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