Singapore economy to grow 3-4% this year

On back of China woes.

According to OCBC Treasury Research, the Singapore economy expanded a better-than-expected 4.1% yoy in 2013, and is tipped to grow between 3-4% this year (official forecast: 2-4%).

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Meanwhile, headline CPI inflation eased to only 1.4% yoy (+0.1% mom nsa) in Jan, while industrial production moderated to 3.9% yoy (-8.1% mom sa) in Jan. Nevertheless, our manufacturing growth forecast remains at 6.9 yoy for Q1 2014 and 3.8% yoy for full year 2014.

Separately, the FY2013 budget surplus came in higher than forecast at $3.9b (equivalent to 1.1% of GDP), while the government announced a centerpiece $8b Pioneer Generation Package to help fund the nation-building generation with healthcare costs, on top of its usual economic restructuring focus with the enhancements to the PIC scheme, and the PIC+ for SMEs.

In addition, the Finance Minister indicated that it was too early for unwinding property measures, but the aim is not to engineer a hard landing. All workers will also enjoy a 1% CPF employer contribution hike, while sin taxes in the form of cigarette, liquor and betting duties were also hiked.

On the SGS bond front, the $2b 10-year SGS bond re-opening fetched an average yield of 2.47% to cut-off at 2.55% with a bid-cover ratio of 2.13x. Next up are the re-opening of the 2-year note on 1 April and 20-year SGS bond on 2 May.

Given geopolitical uncertainty and China growth slowdown concerns, expect SGS bonds to be mostly supported in the near-term.