GDP results blamed on exports

Final data trumped even the most conservative of forecasts.

OSK-DMG Group Economics noted:

Final GDP data for 3Q12 surprised on the downside with real GDP expanding by just 0.3% yoy as compared to the advanced estimates of 1.3% yoy. This was worse than the 0.8% we were expecting and we had the lowest forecast in the market. On a qoq sa basis, the economy contracted by a steeper 5.9% in 3Q vs. earlier estimates of -1.5%. We had expected manufacturing to be revised down sharply from 0.7% in the advanced estimates with the release of weak IPI data in Sep.

However, we had not expected a sharp downward revision in services as well, which was revised downwards to 0.3% yoy from 1.1% reported earlier. Dragging services lower in the quarter were externally-related sectors such as the wholesale/retail segment and financial services, both of which fell 0.3% and 2.7% respectively in 3Q12. Also revised downwards was construction, which now rose by 7.7% yoy instead of 8.6%. Another revision made in the GDP report was 2Q12 growth, which was upwardly revised to 2.5% from 2.3% previously.

In contrast, NODX made gains in Oct, rebounding by 7.9% yoy after two consecutive months of contraction. This beat market and our expectations for an expansion of 2.7% and 3.1% respectively. Driving NODX higher in October was non-electronics, which surged 12.7% yoy from 3.9% in Sep, underpinned by structures of ships & boats (+148.1% yoy) and electrical circuit apparatus (+37.9% yoy) shipments.

Pharmaceutical exports staged a recovery, rising 2.7% yoy in Oct from -3.0% in Sep, while petrochemical shipments moderated to 4.2% yoy in Oct from 5.2% in Sep. Electronics shipments contracted for the third straight month, albeit at a slower pace of 0.8% in Oct compared to -16.6% in Sep. In terms of destinations, Malaysia was the only destination among the top 5 to remain in a contraction, down -6.8% yoy in Oct, while the others like the EU, US and Hong Kong staged recoveries or China, which saw stronger growth.

With external risks to the economy yet to dissipate (mainly the US fiscal cliff and Eurozone debt woes that could hit demand for domestic exports) and given the weaker 3Q12 data, we now expect the economy to expand by just 1.7% in 4Q instead of 2.6% previously and for full-year growth to come in at 1.5% in 2012 , broadly in line with the government’s revised expectations for full-year GDP growth of “around 1.5%” in 2012, which is at the lower end of its earlier 1.5-2.5% guidance.

The outlook for 2013 does not look significantly better than 2012 given the uncertain global environment with IE Singapore expecting NODX to rise by just 2-4% in 2013 as compared to this year’s expectations of 2-3%. With the MAS re-stating their position that the current policy is appropriate, we could expect greater government action via the acceleration of infrastructure projects going into 2013 to try to add some momentum to domestic growth.

Nevertheless, the risks to the economy (including the tight domestic labor market condition) remain on the downside. For now, we maintain our 2013 growth forecast at 3.5%, above the government’s forecast of 1-3%.