Singapore economy grew 5.1% in 1Q

Worse than market's expectations.

According to DBS, based on the advance GDP estimates for 1Q14 released this morning, the economy is expected to have expanded by a mere 0.1% QoQ saar.

This is down from 6.1% in the previous quarter. In year-on-year terms, the economy probably grew 5.1% YoY, from 5.5% in 4Q13.

Here's more:

Growth momentum in both the manufacturing and the services sectors are likely to moderate, with lower sequential growth expected in both sectors. Manufacturing activity is expected to ease to 4.5% QoQ saar in the quarter, from 10.4% previously. Industrial production generally has been slower in the first two months of the year due to the festive season effect as compared to the surge in 4Q13. 

While PMIs of key export markets have remained in expansion mode in recent months, the levels have eased marginally, suggesting a recalibration in production activities. However, we reckon that it reflects manufacturers winding down on their earlier restocking exercise than the mere decline in global demand.

The key drag came from the services sector. Official estimate is for this sector to contract by 1.8% QoQ saar, against the healthy expansion of 6.1% in the previous quarter. But chance is high for an upward revision to this number and consequently in the headline GDP figures as well in our opinion. 

Trade related services, tourism and financial services are expected to remain fairly sanguine against the backdrop of a gradual improving global economic outlook. However, the domestic manpower crunch and high business costs are the key challenges.

The construction sector is likely to expand by 10.7% QoQ saar (6.5% YoY). A healthy pipeline of infrastructure and residential projects are likely to continue to power growth in this sector although margin erosion from higher costs will remain an issue for companies.

Based on the recent track record of the advance estimates, one has to take this set of numbers with a pinch of salt. An upward revision is expected when the final figures are due next month. And the likely upside surprise will come from the services sector given the current conservative estimate in terms of its growth momentum.

The Monetary Authority of Singapore (MAS) has maintained its monetary policy unchanged in today’s meeting. The MAS maintained the modest and gradual appreciation path of the Sing NEER policy band, with no change to its slope, width, and the level at which it was centred. 

While the authority has lowered its inflation forecast to 1.5-2.5%, from 2-3% previously, and growth momentum has slowed, it maintained that the policy stance remains appropriate in balancing the risks on both fronts.