The main culprit for Singapore's devastating 3Q12 performance

Find out which sector's to blame with just a 0.7% increase.

According to DMG OSK, advanced estimates released by the government showed that Singapore avoided a technical recession in 3Q12 following the upward revision to 2Q12 GDP. Based on Jul and Aug data, the economy expanded by a weaker 1.3% yoy in 3Q (-1.5 sa qoq) from 2Q’s 2.3% yoy (0.9% sa qoq).

Here's more from DMG:

Today’s release was nevertheless better than consensus expectations of 1.1% but slightly below our call of 1.5%. The main culprit for the poorer 3Q performance was the manufacturing sector, which rose by just 0.7% yoy vs. 4.6% in 2Q.

On a sa qoq basis however, manufacturing weakness worsened in 3Q, declining a sharper 3.9% as compared to -0.1% in 2Q reflecting the weak global demand for exports, especially for electronics.

On a slightly brighter note, construction and services continued to provide the lift to GDP, rising 8.6% (-7.5% sa qoq) and 1.1% yoy (0.1% sa qoq) respectively, underpinned by continued private sector construction activities and stronger finance and insurance activities.

It was the large upward revision to construction in 2Q (from 5.3% yoy to 10.1%) due to higher certified progress payments from private industrial and residential projects that boosted growth in 2Q.

We do not expect growth to be smooth sailing as global uncertainty should continue to weigh on the economy, hitting the manufacturing and wholesale trade segments particularly. Continued weakness in leading indicators like the SEMI book-to-bill ratio and global PMIs suggested continued volatility in exports and manufacturing can be expected ahead.

With risks still to the downside, we are maintaining our growth forecast at 2.0% for 2012 and 3.5% for 2013. The government still expects the economy to expand by 1.5-2.5% in 2012 and for 2013, the government’s guidance is for growth to come in “slightly below the economy’s potential rate”.

Against expectations, the MAS left monetary policy unchanged by maintaining a modest and gradual appreciation of the Singapore dollar NEER with no change in the slope, center and width of the policy band.

Policy is now bias towards inflation, with greater emphasis now placed on “domestic supply-side factors” that is likely to drive inflation higher on the back of ongoing economic restructuring, such as the tight labor market, continued rise in owner-occupied accommodation cost and higher COE premiums.

For 2012, MAS now expects inflation to come in slightly above 4.5%, while for 2013, inflation is expected to ease to 3.5-4.5%. For the moment, we are maintaining our inflation forecast of 4.3%, but have raised our 2013 inflation forecast to 3.5% from 3.0% as prices are unlikely to come off as quickly as expected.

In line with the current policy stance, we now expect the USD/SGD to hover around 1.22 by end-2012 and to move further downwards to 1.20 by end-2013 on the back of an improvement in growth and no change in the policy stance because of elevated inflation.