AN unexpectedly strong showing by the services sector, together with continued momentum in manufacturing, drove Singapore’s gross domestic product (GDP) growth of 2.9 per cent in the second quarter of 2017 from a year ago, surprising economists.
But most of them do not expect this pace of growth to be sustained in the second half of the year, with manufacturing moderating, even as services continues to pick up.
The growth figures for these two sectors were revised upwards from July’s advance GDP estimates – from 8 per cent to 8.1 per cent for manufacturing, and a more significant leap from 1.7 per cent to 2.4 per cent for services, said the 2017 Economic Survey of Singapore Q2 released on Friday.
Manufacturing, which accounts for a fifth of Singapore’s GDP, is expected to continue supporting growth in the second half.
However, growth has slowed from the 8.5 per cent recorded in Q1 2017, and the 11.5 per cent growth in the quarter before that. Economists expressed concern that only the electronics and precision engineering clusters seem to be powering the growth of manufacturing, on the back of strong global demand for semiconductors and related equipment.
Other clusters such as biomedical manufacturing, general manufacturing and transport engineering put in lacklustre performances in Q2. The declines in output for these three clusters were -12 per cent, -8.5 per cent and -7.4 per cent respectively.
UOB economist Francis Tan said: “In the second half, manufacturing will continue to be driven by the two star players, but growth will be slower. It is risky to rely on two main clusters, as growth is not broad-based.”
He added that the double-digit growth for semiconductor production may slow into the single digits, as a result of base effects and slower growth expected in China.
He also noted that the gains from manufacturing in the past few quarters are starting to spill over to the services sector.
The 2.4 per cent growth in Q2 registered by the services-producing industries, which make up a hefty two thirds of Singapore’s economy, was its best performance in almost two years.
This beats the 1.4 per cent recorded in Q1, and the 1 per cent seen in Q4 2016.
Credit Suisse economist Michael Wan said: “We were expecting a bit of an upward revision in Q2, but what surprised us was the strength in the services sector.”
This was mostly driven by the finance and insurance cluster, which rose 3.8 per cent; transportation and storage went up by 3.5 per cent, and other services industries, 3.1 per cent.
Finance and insurance, in particular, grew at its fastest pace since Q3 2015 from a pickup in financial intermediation, fund management and insurance segments, supported by stronger non-bank lending in Q2.
Another bright spot was business services, which grew 1.8 per cent year on year, compared to the 0.9 per cent clocked in Q1.
This was mainly supported by the head offices & business representative offices and other administrative & support services segments.
In a briefing with reporters, Loh Khum Yean, permanent secretary at the Ministry of Trade and Industry, said that signs pointed to a broadening of growth from manufacturing to externally oriented service sectors such as wholesale trade.
However, he said some unevenness in the growth performance across sectors remains.
He pointed out that domestically-oriented sectors, such as construction and food services, remained weak.
Accommodation and food services was the only services cluster which registered a contraction, declining 2.2 per cent amid sluggish restaurant-sales volumes.
The construction sector continues to languish, extending its decline for the fourth consecutive quarter with a 5.7 per cent contraction year on year in Q2, as a result of a continued slowdown in private and public sector construction works.
OCBC economist Selena Ling observed that the outlook statements by the MTI seemed “more upbeat”.
For the rest of 2017, the MTI said that while manufacturing may moderate, given less than favourable base effects, externally oriented services sectors such as the transportation and storage, wholesale trade, and finance and insurance sectors are expected to benefit from the pickup in global trade; domestic-oriented services continue to remain resilient.
She added: “Only the construction sector is tipped to remain lacklustre due to the double whammy of weak private and public sector activities.”
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