Singapore economy might have fallen 1.4% in 1Q: DBS

Pronounced improvement to be expected in 2H.

DBS have revised our GDP growth forecast for 2013 to 2.5%, down from 3.2% previously. This revision is made mainly on account of a slower than expected growth momentum in the first quarter.

Here's more from DBS:

Indeed, economic activities were sluggish according to the first quarter advance GDP estimates. The economy is likely to have contracted by 1.4% QoQ saar (-0.6% YoY). While much of this “deceleration” is nothing more than a reflection of the highly distorted manufacturing related data over the first two months, particularly due to the Lunar New Year effect, the much anticipated rebound in March was not encouraging either, and certainly not enough to offset the earlier drops.

March industrial production index reported a 6.2% MoM sa expansion but this is not enough to nullify the decline in the previous two months. Overall industrial output still contracted by an average pace of 1.1% MoM sa for the first three months of the year.

That is, although an upward revision to the first quarter GDP to 0.2% QoQ saar is on the cards due to the rebound in March numbers, the growth trajectory for the entire year has been lowered due to a weaker than expected growth in the first quarter. This largely reflects the lacklustre growth momentum in the global economy thus far. China’s economic growth in the first quarter has disappointed and economic data from the US has unanimously turned south. Plainly, while we maintain the view that this year could mark the start of a gradual normalisation process for the global economy, the recovery path is still expected to be tepid.

Moreover, the Singapore economy is also hampered by the current restructuring process. The supply side constraint due to the curbs in inflow of foreign workers imposed by the government has continued to weigh down on growth performance. Growth will remain below potential while inflation will stay higher than normal. This year will be another year when the growth rate will come in below the inflation rate. So despite the anticipated gradual cyclical improvement, overall growth outlook remains weighed down by this structural drag.

Overall, the story behind our forecast has not changed. A more pronounced improvement is still expected in the second half of the year. This revision largely reflects a re-calibration of our view in terms of the current growth pace given the data thus far. Our full year GDP growth forecast for 2014 remains unchanged at 4.0%.