DMG share Singapore economy

DMG

As we expected, the Singapore economy expanded by 6.1% year-on-year (yoy), slightly higher than the advanced estimates of 5.9%, from a revised 1.0% in 2Q. On a seasonally-adjusted quarter-on-quarter (sa qoq) basis, real GDP rose by 1.9% as compared to the 6.4% decline in 2Q, thus avoiding a technical recession.

The better 3Q real GDP was due to the manufacturing sector expanding by a stronger 14.2% yoy (vs. 10% in the advance estimates), supported by the services sector growing 3.7% yoy in the same quarter. Continued strength in financial services (+10.5% yoy) and tourist-related services (hotels & restaurants: +5.6% yoy & other services: +4.0%) helped sustain the services sector. Construction rose marginally by 0.3% yoy, a moderation from 2Q's 1.5% expansion.

Looking ahead, MTI expects 4Q real GDP to weaken on the back of deteriorating external macroeconomic conditions with electronics manufacturing expected to remain a drag on the economy, while pharmaceuticals should moderate. In addition, global financial market uncertainties are likely to impact the domestic financial services sector, where a moderation in activity is expected.

MTI is thus expecting the economy to expand by around 5.0% in 2011, not significantly different from our forecast of 5.1%. In 2012, MTI expects the cloudy external environment to weigh on the domestic economy, and impact electronics manufacturing and the wholesale trade services sector. It will, however, not be all bad news as pharmaceutical manufacturing and tourism-related services are expected to perform healthily.

In light of these factors, the MTI is expecting the Singapore economy to expand by 1-3% in 2012, though it warns that growth could be lower should the economic and financial situation in the EU and the US worsen. As for inflation, MAS expects inflation to come in at 2.5- 3.5% in 2012 (as compared with our forecast of 2.8%).

We are currently reviewing our 2012 forecast and will issue an update after Singapore's Oct IPI data is released on Friday (25 Nov). At the moment, we are expecting real GDP to grow by 4.5% in 2012.