Hope remains for battered Singapore manufacturing, exports: OCBC

Gradual rebound seen for remainder of 2013.

After manufacturing weakness dragged down Q1 GDP growth to an unexpected contraction of 1.4% qoq saar (-0.6% yoy), following a 3.3% qoq saar (+1.5% yoy) expansion in 4Q12, OCBC expects manufacturing and export-oriented services to "gradually improve over the course of the year."

OCBC also foresees domestic-driven sectors like construction and related financing and real estate activities to remain resilient. "With the labour market remaining at full employment, partly due to supply-side constraints, there may be greater cost pass-through to consumer services prices."

Part of OCBC's optimism stems from how the Macroeconomic Review noted that the global economic outlook has improved since late last year, and the recovery in the G3 and China is expected to be sustained. Still, it noted that MAS cut its headline and core CPI inflation forecasts for 2013 by 50bps to 3-4% (previously 3.5-4.5%) and 1.5-2.5% (previously 2-3%), despite keeping its monetary policy stance unchanged in mid-April.

"We retain our 2013 growth forecast at 2%, and our headline and core inflation forecasts are at 3.1% and 2.1% respectively. The key challenge remains the ongoing economic restructuring theme," said OCBC.