Market expectations turn sour as Singapore economy “falls back to reality”

GDP forecast dipped to 3.8%.

According to DBS, market is recalibrating its expectation on growth marginally downwards. Latest Professional Forecasters Survey conducted by the Monetary Authority shows that consensus has lowered its growth expectation for the year to 3.8%, down a tad from an estimate of 3.9% in December.

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While we are maintaining our GDP growth forecast for the year at 4.0%, it is not hard to imagine the rationale behind the downward revision in market expectation.

Firstly, the recent bad data from the US probably has cast some doubts about the strength of recovery in the economy. Plainly, we’ve never been bullish about the recovery in the US. But market probably felt disappointed given its earlier exuberance on this issue.

The “fall back to reality” in expectation probably has prompted this adjustment in view on the Singapore economy since the US is still one of the most important export markets for the island state.

Moreover, risks of hard landing in China have re-emerged. Although the problem of shadow banking in China’s banking sector is not new, the recent case of default and risks of more of such problems going forward may create volatility and risk aversion in the financial market.

This will indirectly affect the Singapore economy from the financial market transmission mechanism.

Plainly, we expect marginal easing in growth momentum in the manufacturing sector as well as a gradual flattening out in growth pace in the services sector. But growth outlook will more likely move sideways than downwards over the year. Full year GDP growth will be just a pinch lower than the 4.1% growth recorded last year.