According to recent data released by Singapore's Ministry of Trade and Industry (MTI), Singapore's gross domestic product (GDP) grew by 2.3% on a quarter-on-quarter seasonally adjusted annualized basis. The figures were compiled after rebasing effects, with the base year for the national accounts now set to 2010 instead of 2005. The revised GDP formula takes into account new elements, including the capitalization of research and development expenditure and employers' pension contributions. The data beats the forecast of the economist who placed the growth for the quarter in the region of 1% and significantly overshoots the government estimates of 0.1% expansion.
The data provides relief and reassurance when China's growth is slowing from a sprint to a jog and domestically oriented industries are crippled by the labor crunch. Singapore's economy has been growing at a steady pace in recent quarters on the back of solid manufacturing output with a pick-up in demand from developed economies such as the US. The Euro zone is also showing flickers of growth with the fiscal policies becoming more accommodative.
The quarter's growth was majorly driven by the robust performance of the manufacturing sector, which was lifted by the recovery in the west. The sector registered a QoQ growth of 11.9%. The sharp rebound in the biomedical manufacturing cluster, as well as stronger growth in the chemicals and transport engineering segments, aided the strong performance of the manufacturing sector.
The finance and insurance sector expanded by 5.4% YoY, moderating from the 10.5% growth in the previous quarter. The QoQ growth data was a sharp deceleration, from 26% in the preceding quarter it dropped to 3.5%, however the moderation was anticipated after the overwhelming growth in the preceding quarters. The negative market sentiments also weighed back the sector. The construction sector and the wholesale and retail sector also grew by 0.6% on a QoQ basis, much lower than their growth rate of 10.6% and 7.7% respectively in the previous quarter.
Singapore's trade dependent economy is highly sensitive to global economic events and some economists have highlighted the risks this presents. Uncertainties still prevail over the US monitory policy and domestically, despite the efforts to push productivity, the labor crunch may also eventually impede the now robustly growing manufacturing sector. The inherent risks surrounding the economy cannot be overlooked; the impact could be dismal if the US decides to unwind the stimulus measures abruptly and China's growth tumbles dangerously because of its measures to control the credit growth.
Commenting on the economic data, Jacqueline Low, COO of Guidemesingapore, says "Although the YoY growth of 4.9% was a little lower than the estimated 5.1%, the 4.9% growth is positive and it is in line with the previous quarters. It does not indicate any integral economic weakness but reflects the markets' adjustments to the economic restructuring measures implemented. The construction sector slowed because the private sector lulled following the cooling measures undertaken by the government, and the domestically oriented sectors like the retail and services moderated because of the operational challenges faced due to the labor crunch. However, we believe that it is only a transition phase and eventually the market will bounce back with a stronger growth rate aided by the global economic recovery and strong domestic demand."
Adding further "We find that business sentiments continue to remain positive; the activities are gaining momentum as seen from the business incorporation data. Our report published for the first quarter of this year shows that there has been phenomenal growth in the numbers; there was an 11.7% increase in businesses registered from the preceding quarter. This indicates that Singapore has strong economic fundamentals and any moderation is just a transition. We remain confidant that the whole year growth will surpass the estimates. "