Singapore proves pessimists wrong: technical recession averted in 3Q

Risks remain but MAS surprised market by not easing its monetary policy.

Annualised and seasonally adjusted (SAAR), the economy shrank 1.5% in 3Q12 vs. consensus of -1.6% and -2.0% respectively. However, the economy didn’t fall into a technical recession (two straight quarters o contraction) as revised data show 2Q12 GDP expansion of 0.2% vs. the previous estimate of -0.7%. 

Revisions had been made to 2Q12 construction growth, from +0.9% qoq to +14.3%. However, construction fell 7.5% in 3Q12.

Yoy, construction expanded 8.6%, slower than 2Q12’s +10.1%.

According to CIMB, the main drag in 3Q12 was a 3.9% qoq fall in manufacturing output on weaker transport engineering, bio-med and tech (-0.1% in 2Q12). Due to weaker demand, 3Q12 manufacturing growth slowed to just 0.7% yoy from 2Q12’s 4.6%.

Despite dimmer global-growth prospects, Singapore’s service-producing sector, which dipped 0.4% qoq in 3Q12, grew 0.1% qoq on the back of stronger finance and insurance contributions. 

Still, CIMB notes that  the soft 3Q12 has lowered 9M12 GDP growth to 1.7% yoy (1.8% in 1H12).

"Although orders, especially tech orders, have been improving of late on the back of new product launches, we are lowering our 4Q12 GDP growth to 2-3% yoy from 4-5%. This lowers our 2012 GDP growth forecast to 1.5-2% from 2.8%," said CIMB in a latest report.

The MAS surprised the market by not easing its monetary policy.

"Although growth “could be weighted down by the subdued global economic conditions”, the government still thinks the economy can grow 1.5-2.5% this year and “at a modest pace in 2013”. With that assumption and considering the inflationary bias inherent in its policy of restricting foreign-labour inflows, the MAS is maintaining its policy of a “modest and gradual appreciation of the S$NEER policy band” with no change to the slope, width or the mid-point of the band. It expects inflation to remain stubbornly firm, at “slightly above 4.5%” in 2012  and 3.5-4.5% in 2013, though well above its comfort zone," said CIMB.