Is Singapore fully out of slump after breaking loose of technical recession in Q4?

Experts warn against complacency.

The Singapore economy grew by 1.1% yoy and +1.8% qoq saar in Q4 2012 according to government’s flash estimates released last week. This meant that the Singapore economy escaped a technical recession, as both Q3 and Q2 growth data were also revised lower to 0% yoy (-6.3% qoq saar) and +2.3% yoy (+0.2% qoq saar).

Following are experts’ views and outlook of what 2013 hold for Singapore economy.

Selena Ling, OCBC Bank, analyst

We still look for around 2% growth in 2013, even with a sluggish H1. Our 2013 GDP growth forecast is 2% yoy, an improvement from the 2012 full-year growth of 1.2% yoy, albeit H1 momentum may still be modest even though Q4 momentum had reaccelerated from Q3 which was the trough of the downcycle in 2012 as we predicted. We expect a tepid H1 growth of around 1.2% yoy to gradually pick up some speed in H2 2013 to around 2.9% yoy.

Domestic asset prices remained buoyant into the year-end. S’pore’s private home prices climbed 1.8% qoq to a record 211.90 points in Q4, adding to the +0.6% qoq in Q3 2012, and bringing full-year gains to +2.8% yoy versus +5.9% yoy in 2011. Non-landed private home prices rose 0.8% qoq in Q4, while suburban prices surged 3.4%. However, business sentiments are showing some tentative signs of caution – although overall bank loans added 0.5% mom in Nov, business loans moderated 0.4% mom even though manufacturing and building/construction loans continued to be resilient. Consumer loans rose 1.7% mom, boosted by housing loans. Yearto- date for 2012, total bank loans growth is chugging along at close to 22% yoy. Domestic challenges still remain, namely on the inflation front amid a weak external demand environment.

Looking ahead, we expect the domestic interest rates to remain subdued given the major G7 central banks remain in easing mode, but global food prices and other inflationary pressures will likely sustain domestic headline CPI inflation to be still in the 3-4% yoy range in the meantime. So far, the gradual growth recovery story coupled with the still elevated inflationary environment may mean little impetus to deviate from the current monetary policy stance in the near-term, especially with the SGD NEER still hugging the stronger end of its parity band for now. 

Domestic companies still face a tepid external demand environment, while domestic cost pressures remain. The upcoming Budget, likely in February 2013, may offer some relief to SMEs, but the foreign manpower curbs and the productivity push are likely to remain mainstays, especially with global tail risks subsiding. For the man on the street, keep an eye on potential tweaks to housing and COE policies that have been in the news of late.

Edward Teather, Economist, UBS Investment Research
The downward revision to actual Q3 growth along with the soft preliminary Q4 real GDP growth leads us to lower ur projections for Singapore growth in 2012 and 2013. Previously we projected 2% real GDP growth in 2012 and 3.5% in 2013.
The cyclical improvement we anticipate has yet to take shape in recent trade and manufacturing numbers. But early signals of a moderate recovery persist in survey based lead indicators of global trade), which echo the cautious optimism of UBS global growth forecasts. The certainty on US income taxes afforded by the fiscal deal over the New Year is consistent with this view. As such we still look for cyclical improvement in Singapore growth, but the slower than we anticipated momentum into year end leads us to revise our real GDP growth projections to 1.2% in 2012 and 3.0% in 2013. Our bias is to be towards the upper end rather than the lower end of the government’s 1-3% real GDP growth projection; the high of 5.5% yoy growth we forecast for Q4 2013 is still a subdued recovery by historic Singapore standards.
Slower than expected growth should, all else equal, increase the potential for looser MAS currency policy. However, the authorities continue to highlight the inflationary capacity constraints implied by structural labour market policies. We do not look for a change in currency appreciation policy on the part of the MAS in April, but will be looking at the government’s budget expected in late February for guidance on how tight the authorities perceive capacity constraints to be. Broadly retaining our expected appreciation of the Singapore dollar, we revise our end-
2013 USDSGD forecast to 1.17 from 1.15 since USDSGD only reached 1.22 rather than the 1.20 we long projected for end-2012 after 1.30 at end-2011.

Anonymous, market specialist, Oanda
Despite this turnaround, Singapore may not be fully out of the slump. Manufacturing sector contracted by 10.8% annualized, extending the losing streak to 3 consecutive quarters. Construction sector remained strong, growing at 5.9%, but that is to be expected as the Singapore Government continue to invest heavily into infrastructure building.
With global economy potentially picking up at the start of 2013 due to “Cliff” deal cheers, manufacturing sector will readily pick up especially since Singapore’s manufacturing focus mainly on mid-higher tier technological goods with high beta coefficients.