Economic Growth in Singapore Remains Lackluster

Real GDP in Singapore rose a bit more than expected on a sequential basis in Q3, but the year-over-year rate of growth remained sluggish. Weakness in construction was a main headwind. 

GDP Growth Remains Relatively Subdued

Recently released data show that real GDP in Singapore grew at an annualized rate of 1.2 percent in Q3-2014 relative to the previous quarter. The outturn was a bit stronger than the consensus forecast had anticipated, but the 2.4 percent year-over-year growth rate shows that the underlying pace of economic growth in the Lion City remains lackluster. 

A detailed breakdown of the GDP data into its underlying demand components will not be available for another month or so, but industry disaggregation offers some clues as to the sources of growth in Singapore at present. After falling 15.1 percent on a year-ago basis in Q2, manufacturing returned to modest growth in Q3, up 1.2 percent, while growth in services-producing industries slowed on the quarter. Construction disappointed for  the second consecutive quarter, falling 2.7 percent, and furthering the 2.4 percent decline in Q2. The slowdown in construction comes as Singapore is using measures to restrain home price increases, which may be having a negative effect on construction sentiment.

Monthly Trade Data Point To Weak Imports and Exports 

Singapore is one of the most open economies in the world and, therefore, trade has a large effect on overall GDP growth. It seems as though trade may have provided a slight boost to the modest growth experienced in the third quarter, although not necessarily for the right reasons. Looking at monthly data on non-petroleum trade, which makes up 80 percent of overall exports, both exports and imports appear to have contracted in Q3, at 0.8 percent and 3.6 percent, respectively. With imports declining more rapidly than exports, net exports should be a contributor to overall growth, although this suggests weak domestic demand and global demand. While recent weakness has not likely weighed too heavily on domestic economic growth, it is another signal of the difficulties that the global economy is experiencing as a whole. Weak growth in Europe is probably not having a large effect on the Singaporean economy, but the slowdown in China and perhaps even the protests in Hong Kong could be weighing on growth. 

No Pressure on Central Bank from Inflation

CPI inflation is under control, at only 0.9 percent in August. Despite recently tame inflation, the Monetary Authority of Singapore (MAS) said recently that it will maintain its policy for gradual appreciation of the Sing dollar, citing the need to keep inflation in check. Singapore’s nominal effective exchange rate, which the MAS uses to guide monetary policy, has flattened out more recently, while remaining in the upper half of the policy band. Like many other emerging market currencies, the Sing dollar has depreciated against the greenback since the end of July (about three percent), although it has strengthened on balance vis-à-vis the euro and the yen over that period.