Singapore’s GDP Grew a Meager 0.6% in Q3

Decline in manufacturing and services sectors pulls down GDP growth during Q3 FY16

Southeast Asian financial and trading hub Singapore’s GDP contracted 4.1% on an annualized basis during Q3 FY16 compared to a revised 0.2% expansion in Q2 FY16, according to preliminary estimates from the Ministry of Trade and Industry, Government of Singapore, and as reported by Bloomberg on October 14th, 2016. However, GDP rose 0.6% in Q3 FY16 when compared to the year-ago period, and slower than estimates of 1.7%. The advanced GDP estimates only include data from July 2016 and August 2016. The government is scheduled to publish final GDP data in November 2016.

The Q3 FY16 GDP growth was the weakest since Q2 FY09, as manufacturing and services sectors shrank while construction slowed. It was also the first contraction since Q2 FY15 and the sharpest since Q3 FY12, mainly driven by a decline in manufacturing and services sectors. In Singapore, the services sector is the biggest contributor to the economy, accounting for 72% of GDP. Within services, the most important segments are wholesale and retail trade (18% of total GDP); business services (16%); finance and insurance (13%), transport and storage (10%) and information and communications (5%). Industry contributes the remaining 28% total output. Manufacturing (21%) and construction (5%) are the most important industry segments.

Source: Singapore's Ministry of Trade and Industry
Source: Singapore’s Ministry of Trade and Industry

Singapore’s GDP growth has been under pressure since 2014 due to a slowdown in global trade and lower energy prices, hurting the city-state’s oil and gas services industry. Government measures to cool the property market and curb the intake of foreign workers are undermining profits in some key industries, while manufacturing is struggling to gain traction. In FY15, Singapore’s economy expanded 2%, the slowest pace since 2009, and economists forecast even lower growth in FY16.

Source: Ministry of Trade and Industry, International Enterprise Singapore
Source: Ministry of Trade and Industry, International Enterprise Singapore

During Q3 FY16, the services industry contracted at an annualized 1.9%, extending the 0.9% decline in Q2 FY16. Growth was weighed down by the wholesale and retail trade sectors. The wholesale trade segment contracted, while the retail segment posted positive growth, mainly due to a surge in auto sales. Other services such as accommodation, education, information and health remained buoyant. The last time Singapore’s service sector registered three straight quarters of quarter-on-quarter annualized contraction was during the 2008-2009 global financial crises.

During Q3 FY16, manufacturing contracted an annualized 17.4% versus a growth of 2.1% in Q2 FY16. This is mainly attributed to a decline in output of the transport engineering, biomedical manufacturing, and general manufacturing clusters. On the brighter side, the construction sector expanded by an annualized 0.5% during Q3 FY16, versus a 1.1% growth in Q2 FY16.

In August 2016, the Government of Singapore trimmed its full-year growth forecasts to between 1% and 2%.

WTO trims global trade growth in 2016

Despite the weak data, Singapore’s central bank, the Monetary Authority of Singapore (MAS) kept its monetary policy unchanged with a neutral bias for its currency. MAS, which review its policies twice every year, sets its monetary policy by adjusting an undisclosed trading band for the currency based on a basket of currencies weighted to reflect trade levels, rather than using interest rates.

Meanwhile, the World Trade Organization (WTO) revised downwards its forecast for global trade growth in 2016 to 1.7% from the earlier estimate of 2.8% in April 2016, on September 27th, 2016. The downward revision is mainly on account of a slowdown in China and falling levels of U.S. imports, marking the first time in 15 years that global trade is expected to lag behind global GDP growth. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.

As predicted, China’s September 2016 trade figures painted a dismal picture. China’s exports tumbled 10% in dollar terms while imports fell 1.9%, coming in well below forecasts for a 3% fall in exports and a 1% rise in imports.

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