Singapore GDP could slow to 2.5% year-on-year in the second quarter

The slower y-o-y growth for the Q2 compared to the 8.5% in Q1 is partly due to a strong base year and a volatile production that spells downtrend in technology and pharmaceutical sectors – a common scenario after a strong quarter says Moody’s Analytics.

“In Singapore’s case the pharmaceutical industry has cycles where production is interrupted every few months to clean factories and make way for new drugs, which is partly why its production numbers are so volatile. This appears to be a big contributor to the 16.7% annualized contraction in Q3 2010, and the 1.5% contraction in Q4 2009,” Alaistair Chan, economist at Moody’s told Singapore Business Review.

The economist added that the very strong Q1 numbers this year suggest that a lot of drug production occurred in the quarter.

The Ministry of Trade and Industry is yet to release performances of various economic sectors for the Q1 next month but historical data would show that the pharmaceutical industry is a key component of the manufacturing sector contributing almost 9% to total out of the sector. The manufacturing sector which comprises almost a third of Singapore’s GDP grew by 13.9% in the Q1 against the 29.7% recorded in the Q4 of 2010.

Downtrend in the total output of the technology sector will also contribute to slower GDP growth this year, according to the investment firm.

“Production of the technology has been strong lately due to the global inventory restocking cycle, and this also appears to be ending,” said Mr. Chan.

Gregory Yap, analyst at KimEng Research, shared the same view adding that 2011 growth for the technology sector is expected to be more muted this year than in 2010.

In a research note dated April 15 this year, Mr. Yap said that Singapore’s electronic manufacturing output grew by 26.9% in 2010 to reach a 20-year high of $89.9 billion as the technology sector saw consumers returning to buying gadgets in the first half. Full-year figure for the electronics manufacturing production was higher than the global industry growth average of 9.3% and Singapore’s GDP growth rate of 14.7% in 2010. Electronics manufacturing accounted for about 7% of Singapore’s GDP output last year.

Slowdown in the electronic manufacturing however was already apparent in the second half last year amidst growing economic uncertainties in the US and Europe that could be carried over this year, according to the analyst.

Moody’s Mr. Chan meanwhile sees “reacceleration” of the technology sector due to greater production capacity.

Moody’s forecast full-year GDP to expand by 5.4% which is at the upper end of the government’s forecast of 4-6% but is way below last year double digit growth of 14.5%.

“Growth this year will be slower than in 2010 as the global tech inventory restocking cycle ends, and construction projects (govt infrastructure projects, integrated resorts) have mostly finished. But solid investment in greater operating capacity in electronics and a strong tourist market will mean growth will be still quite positive,” said Mr. Chan.

OCBC Bank Treasury Research & Strategy Group meanwhile forecasts a much higher 5.3% GDP growth for the 2Q and 6% for the full-year as it believes the key US and Eurozone economies already having a stronger footing.