Singapore economy grows 2.7% in 1Q17

It beat government forecast.

Singapore's economic growth has surpassed government projections from an estimate of 2.5% y/y to 2.7% y/y, and here's why.

Tradeable sectors continue to boost economic growth in 1Q 2017 as GDP grows 2.7% y/y. This is higher than government advance estimates of 2.5% y/y growth rate, but slightly lower than the stellar 2.9% y/y expansion in 4Q 2016.

In a quarterly report published by United Overseas Bank for the third quarter of 2017, bullish growth has been derived within the manufacturing sector, particularly in electronics and precision engineering clusters.

"The strong global semiconductor demand had resulted in the production of semiconductors to grow at an on-year double digit pace over the past 13 months, at an average growth rate of 41% y/y. That spilled over positively to the precision engineering cluster, which experienced an average growth rate of 12.1% y/y over the past 8 months." the report said.

The transportation, storage, and the business services sector also contributed to the GDP growth as a robust pick up was seen on these sector's growth at 1.6% y/y. Trailing behind are the accommodation and F&B that contracted 1.9% y/y. The construction sector also lags behind due to weakness in private sector construction works.

"The pickup in GDP growth since 4Q 2016 certainly helped to boost confidence for the stakeholders in the economy. This is much needed since both consumption and investment continued to contract for the 2nd and 3rd quarter respectively in 1Q 2017." the report said.

Here's more from the UOB Report:
As we enter the second half of 2017, we remain optimistic in the continuing growth for the electronics and precision engineering clusters. However, the double-digit growth for semiconductor production may slow into the single digits, due to base effects and a slower 2H capex growth expected in China.

However, headwinds and uncertainties to growth remain due to the upcoming elections in several European countries as it may fuel further populist, anti trade
sentiments which will be a strong negative for Singapore’s trade-dependent economy. Additionally, policy surprises from the new US administration could add on to the cautious consumer and business sentiments, further constraining incremental discretionary consumption and business investments.

The Singapore Trade Ministry maintained their “1% to 3%” 2017 GDP growth forecast, while adding that GDP growth may come in higher than the 2% in 2016, barring the materialization of several mentioned downside risks (such as anti globalisation sentiments weighing on global trade and monetary tightening in China.). We are maintaining our 2017 GDP forecast of 2.4%. The 2.7% y/y growth in 1Q 2017 could be the peak on-year growth rate for 2017 and that growth rates in the next 3 quarters will be lower, although still higher than 2% y/y.