Services sector becomes Singapore’s economic stalwart as manufacturing flounders

It will continue to drive growth in coming quarters.

The services sector has become Singapore’s economic stalwart as domestic manufacturing continues to languish in the red.

Analysts note that the services sector was the main contributor to the republic’s stronger-than-expected GDP print in the first quarter, supported by robust growth in the financial services sub-sector.

“Services surprised on the upside, leading growth and offsetting weakness from manufacturing. The decoupling of services from manufacturing growth is increasingly visible, in part of because of the disproportionate impact from restructuring, rising wage costs and land constraints on manufacturing,” said Hak Bin Chua, ASEAN Economist at Bank of America Merrill Lynch.

Chua added that while externally-oriented services subsectors will see improved growth, domestically-oriented and labour-intensive sectors will continue to be weighed down by low oil prices, the manpower crunch, and lacklustre tourist arrivals.

HSBC Economist Joseph Incalcaterra noted that the services sector’s prospects will be boosted by the formation of the ASEAN Economic Community at the end of the year.

“Singapore's services industries should benefit from increased economic integration, given the city-state's role as a conduit for investment into the region. Accordingly, we forecast a relatively steady service sector sustaining GDP momentum throughout 2015, even as manufacturing continues to feel the headwinds of weak global growth amid the domestic restructuring,” he said.