20171123-大华银行-Macro_Note__Singapore__Why_Will_2018_GDP_Growth_Be_Lower_Than_2017__5页_1mb

Singapore: 2018 GDP Growth Forecast and Key Economic Indicators

Core Content

Singapore's 3Q 2017 GDP growth reached 5.2% y/y, surpassing both the Ministry of Trade and Industry (MTI) and consensus estimates. This marked the highest growth rate since 4Q 2013 and reflected a strong rebound in global trade since 2H 2016, which benefited export-oriented Asian economies, including Singapore. UOB upgraded its 2017 GDP growth forecast to 3.3%, while the MTI revised its forecast to 3.0% to 3.5%. For 2018, UOB forecasts 2.5% GDP growth, citing potential headwinds that may slow the pace of expansion.

Main Sectors and Performance

Manufacturing Sector

• Strongest performer: Expanded 18.4% y/y in 3Q 2017, up from 8.4% y/y in 2Q.
• Key drivers: Electronics and precision engineering clusters, with the electronics sector growing 37.2% y/y (Jan-Sep 2017) and semiconductor production expanding 53.7% y/y.
• Cyclical nature: The growth in semiconductor production is attributed to a cyclical increase in demand, not competitive advantages. The Asia Pacific semiconductor sales growth slowed from 26.6% y/y in April 2017 to 13.2% y/y in September 2017, signaling a potential slowdown in 2018.

Services Sector

• Dominant contributor: Accounts for 67% of GDP, and showed strong growth in 3Q.
• Positive momentum: The services sector's growth was revised upward to 2.4% y/y in the second reading, contributing to the overall GDP increase.
• Sub-sectors: Finance & insurance expanded 5.9% y/y, information & communications grew 4.9% y/y, and business services rose 1.4% y/y. "Other services industries" also grew 2.0% y/y, supported by education, health, and recreation sectors.

External Sectors

• Transportation & Storage: Grew 4.6% y/y in 3Q, driven by water and air transport.
• Wholesale & Retail Trade: Expanded 2.2% y/y, aligned with the NODX (Non-Oil Domestic Demand) growth.

Domestic Sectors

• Construction: Continued contraction, down 7.6% y/y in 3Q, extending a 9.1% y/y decline in 2Q.
• Accommodation & Food Services: Contracted for the 4th consecutive quarter, down 2.1% y/y.
• Positive signals: The construction sector's performance is closely tied to the URA private residential price index, which may signal a future recovery.

Key Risks and Headwinds for 2018

• China's economic slowdown: Expected to moderate in 2018 due to declining investment, despite stable consumption. This could reduce demand for Singapore's exports.
• High US equity valuations: The Shiller CAPE ratio at 31.1 suggests potential volatility, and continued US rate hikes may lead to negative wealth effects.
• Domestic policy risks: The government may increase the Goods & Services Tax (GST) from 7% to 8% in April 2018, which could dampen consumption and increase inflation.
• SGD appreciation: The Monetary Authority of Singapore (MAS) may normalize the SGD NEER policy, leading to a stronger currency that could hurt export competitiveness.

Conclusion

While Singapore's economy showed robust growth in 3Q 2017, driven by external trade and services, the outlook for 2018 is more cautious. The manufacturing sector, particularly semiconductors, may experience slower growth due to cyclical demand trends. Domestic sectors like construction and accommodation & food services remain weak, but there are signs of potential improvement. UOB forecasts 2.5% GDP growth for 2018, down from 3.3% in 2017, due to a combination of external and domestic challenges.