Singapore's Q2 GDP Softness

The advance estimate for Q2 GDP showed a deeper contraction of 4.6% q/q saar (+1.7% y/y), well below expectations (Consensus: -1.5% q/q saar). The fall reversed a 4.2% gain in Q1. The Q2 contraction was driven by a 14% q/q saar decline in manufacturing output - led by the biomedical manufacturing (which surged in Q1) and transport engineering clusters. The soft print reflects the sudden stop in US growth momentum in Q1, which was distorted heavily by bad weather and the West Coast port strike - which disrupted supply chains and the flow of US bound shipments from Asia until late Q2.

"Anticipating a similarly weak final Q2 GDP outturn, we lower our 2015 and 2016 full year growth forecasts by 1.4pp and 50bp to 2.0% and 2.5%, respectively. We think the government will also narrow its forecast range, most likely to 2-3% from the current 2-4% in the PM's National Day address on 8 August," says Barclays.

Delving into the details, the contraction in GDP was driven by a 14.0% q/q saar drop in manufacturing output (Q1 15: 0.4%, Q4 14: -2.5%), consistent with weak IP prints for the first two months of Q2. Services output also contracted 2.6% q/q saar on the back of slower expansion of activity in the commerce and retail trade as well as a slump in real estate transactions. Indeed, media reports have indicated that the number of real estate agents had fallen by around 2,000 in Q1 this year. Construction output also shrank marginally (-0.2% q/q saar), following robust growth of 8.3% q/q saar in Q1.

Barclays notes:

• We do not expect a further sequential contraction in Singapore in Q3, given that US growth regained momentum in Q2 (Q1: 0.2% q/q saar; Q2: 3% forecasted).
  
• While services activity continues to be supported by financial and ICT services, we also expect some cyclical recovery in manufacturing, particularly in electronics, helped by a US recovery.
  
• Meanwhile, the structural outperformance of non-electronics sectors - particularly the biomedical cluster and chemicals - is likely to continue. One factor is the potential restart of the USD2.4bn Jurong Aromatics facility from September, which could lift petrochemical output.
  
• We also expect construction activity to be more strongly supported by the increasing pipeline of public sector construction activity - around public housing, airport and subway expansion projects - ahead of a possible general election later this year.
  
• Against this backdrop, and with core inflation to be supported by firming labour and utilities costs, we continue to expect the MAS to keep policy on hold this year.
  
• We expect the SGD NEER, which has been hovering slightly above the midpoint, to drift below the midpoint in the coming months - possibly around minus 50bp to minus 100bp - ahead of the October MPS meeting

Source : FX-Primus

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