The government yesterday raised its full-year growth forecast to 3.5-4 per cent - not the nudge or the narrowed forecast range typical for this time of year, but a hike that implies growth of no less than the top end of its earlier 2.5-3.5 per cent forecast range.
That itself was the product of an upward revision just in August from the first projection of 1-3 per cent, put out this time last year.
Manufacturing's recovery, which arrived only late in the last quarter, helped push Q3 gross domestic product (GDP) growth to 5.8 per cent year on year, the Ministry of Trade and Industry (MTI) said yesterday. This beat the expectations of market economists, who thought the flash estimate of 5.1 per cent growth would be raised to a median forecast of 5.3 per cent.
In sequential terms too, the GDP surprised the market with an annualised 1.3 per cent jump after seasonal adjustments, contrary to the advance estimate of a one per cent quarter-on-quarter contraction. Economists were expecting a better showing, but the median of 15 forecasts submitted to Bloomberg still pointed to a 0.3 per cent drop.
After MTI released the figures yesterday, at least four banks hiked their 2013 growth forecasts; two raised their estimates to 4 per cent, the top end of the new official estimate. This, despite the very different story unveiled yesterday on the trade front by International Enterprise Singapore. The government now expects non-oil domestic exports (NODX) to contract more sharply by 4 to 5 per cent this year than the earlier projection of a zero to one per cent fall.
But economists pointed to the October trade figures, which came out earlier this week, showing the first month of NODX growth since January and early signs of recovery.
UOB economist Francis Tan said: "Recent high-frequency data shows an improvement in the factory output of Singapore's key exporting countries, and the expected recovery in the advanced economies over the next few quarters will likely lift demand for our exports."
This gives him and other analysts reason to believe that the recovery in exports may soon catch up with that in industrial output.
Many economists noted that Q3's strong showing went beyond the industrial sector. Not only did manufacturing growth accelerate to 5.5 per cent from a flash estimate of 4.5 per cent - thanks to a surge in electronics and rig-building activity - the services sector too, grew 6.3 per cent, beating a flash estimate of 5.7 per cent growth. In particular, segments facing the global economy, such as wholesale and retail trade and transportation and storage, expanded strongly, to offset quarter-on-quarter declines in sentiment-sensitive sectors such as finance and insurance.
Other lagging sectors were the tourism-related sectors. Accommodation and food services grew a relatively weaker 3 per cent year on year, falling 1.1 per cent in sequential terms. Barclays economist Joey Chew said that these likely suffered from the depreciation in Asean currencies and weaker sentiment in the region. Comparing the first three quarters of 2013 with that of 2012, the economy expanded 3.5 per cent. MTI expects this pace of growth to carry into the final quarter.
MTI's permanent secretary, Ow Foong Pheng, said: "For the rest of the year, we expect externally oriented sectors like manufacturing, wholesale trade and transportation and storage to support growth, in line with the slight pickup in the global economy."
Construction, which grew 5.3 per cent in Q3, and business services, which grew 3.9 per cent, are also expected to stay resilient in this current quarter. However, it is possible that the pace of growth may moderate next year, if it falls in the lower end of the government's forecast range of 2 to 4 per cent growth for 2014.
With a slow recovery in the US and eurozone on the cards and Asia's growth likely to be mild, given structural reforms in China and fiscal consolidation in some Asean economies, MTI characterised Singapore's 2014 growth outlook as "modest". There are risks to this global backdrop, including uncertainties over how markets might react to the Federal Reserve's move to taper quantitative easing, or whether the US debt ceiling is raised in a timely manner. MTI sees the eurozone as still "susceptible to a flare-up of the sovereign debt crisis"; the risks from China are those of a sharper-than-expected slowdown as its government restructures the economy.
MTI also noted that tightness in the labour market - due in part to foreign manpower curbs - will persist and could drag down growth of domestic sectors that are labour-intensive.
Although stronger output pointed to labour productivity being favourable this time round, Mrs Ow said that the impact of policies to shift the economy towards "productivity-led" growth should be assessed only over the longer term.
But the take-up of grants and incentives to boost productivity has been "encouraging", she said, adding that as at September, the government had committed to disburse $330 million in such incentives to more than 15,000 companies.
Source: Business Times, 22 Nov 2013