Singaporean Real GDP Growth Weakens a Bit in Q1

The year-over-year real GDP growth rate in Singapore weakened a bit in Q1, but recent trends in the country’s exports suggest that the global economic expansion remains intact. 

Growth in Singapore Softened Somewhat, But Remains Positive

Data released this morning showed that real GDP in Singapore was essentially flat on a sequential basis in Q1-2014. The outturn was a bit weaker than most analysts had expected, and it caused the year-over-year growth rate to slow from 5.5 percent in the final quarter of 2013 to 5.1 percent in Q1 (top chart). 

The economy of the city-state of Singapore is rather small, but the GDP data do have some meaningful implications. First, Singapore typically is the first country to release quarterly GDP data. Over the coming weeks, scheduled GDP releases in other countries will give analysts insights into the current state of the global economy. In addition, Singapore has one of the highest ratios of international trade-to-GDP in the world. Therefore, economic trends in Singapore contain some information about the pace of growth in other economies, especially those Asian economies that have extensive trade ties with the Lion City. 

In that regard, monthly trade data from Singapore offer some hope for the state of the global economy as the trend rise in the volume of Singaporean exports over the past few months suggests that the global economic expansion remains intact. Indeed, the volume of Singaporean exports in the first two months of 2014 was up 8.1 percent relative to the same period last year (middle chart). The uptick in real import growth indicates that growth in Singaporean domestic demand remains solid. 

Sing Dollar Should Eventually Bounce Back Versus Greenback

Because the Singaporean economy is so open to international trade, the main policy focus of the Monetary Authority of Singapore is the trade-weighted value of the currency. The Singaporean dollar depreciated  somewhat against the U.S. dollar in mid-2013 as financial markets started to price in the advent of Fed “tapering.” However, the currency continued to trend higher on a trade-weighted basis (bottom chart). For example, the Sing dollar has strengthened over the past year versus the Australian dollar and the Japanese yen. More recently, the currency has gained more than 5 percent vis-à-vis the Chinese renminbi (China is Singapore’s largest trading partner). 
Looking forward, we expect that by the end of this year the Sing dollar will recoup all of the losses that it suffered against the greenback during 2013. Fed “tapering” is completely priced into financial prices at present, and the country’s large external surpluses (Singapore’s current account surplus is equivalent to 18 percent of GDP) will exert some upward pressure on the currency. Further out, the Sing dollar could soften somewhat against the greenback next year as the Federal Reserve commences to hike its policy rates.