Industrial production's stunning performance to drive Singapore GDP up 5.8%

IP growth beat market's forecast.

The Singapore economy is in for a positive surprise as analysts expect GDP growth figures to register 5.8% instead instead of the 5.1% reported in the advance GDP estimates. This is boosted by industrial production's strong performance in March.

According to DBS, on the margin, the economy is expected to have grown by 2.5% QoQ saar, up from 0.1% projected previously.

Here's more:

The strong than expected showing in March industrial production growth is one of the reasons for the upward revision. Industrial output in March surged by 12.1% YoY (6.1% MoM sa).

This is about twice the pace predicted by the market and what is implicit in the advance GDP estimates of about 6.5% YoY. Importantly, this will lead to an upward revision in the manufacturing growth figure for the first quarter to 9.8% YoY, from 8.0% projected previously. 

More importantly, this will lead to a significant upward revision to the first quarter GDP growth figure. The manufacturing sector accounts for about 27% of overall GDP. This upward adjustment in the manufacturing sector growth alone will add about 0.5%-pt to the headline GDP growth figure for the first quarter.

Moreover, chance is high for the services sector growth to be revised upward as well. Note the last time the services sector dipped into a sequential contraction (-2.3% QoQ saar) was back in 3Q12, at the peak of the Eurozone debt crisis. While there have been some volatilities in the financial markets recently, the associated risk level was not of similar magnitude compared to the previous episode. 

So, it is hard to imagine the services sector, usually the most stable engine in the economy, dipping into contraction when the downside risk was not exactly that significant.