Surprisingly poor Q2 GDP figures will rain on SG50’s parade: DBS

Final figures will be much worse than estimates.

Singapore’s poor second quarter growth figures will likely dampen the upcoming SG50 celebrations, according to a report by DBS.

DBS noted that the headline number due next Tuesday will disappoint with a contraction of 5.0% quarter-on-quarter, substantially worse than the advance GDP estimates of a 4.6% quarter-on-quarter decline.

“Marginal upward revision in the services sector is expected to be offset by even deeper contraction in the manufacturing sector. Industrial production figures for June had come in worse than expected. Industrial output fell by 4.4% YoY and 3.3% MoM sa. It’s an utterly poor outcome and this is way lower than the -1.8% YoY assumed in the recent advance GDP estimates for 2Q15,” DBS said. 

Although the services sector will be able to pick up some of the slack with a marginal upward revision, DBS noted that it will not be enough to completely offset the drag from the manufacturing sector. 

“Services sector growth figures tend to get underestimated in every preliminary estimate. So, expect this figure to be revised upward to 3.3% YoY, up from the advance projection of 3.0% YoY. However, a domestic labour crunch due to the restructuring effort has been weighing down on the performance of the sector. In fact, even with the upward revision, services growth has moderated significantly from 4.2% YoY in the previous quarter,” the report noted.

“Ultimately, external demand has been weak amidst the dicey global economic conditions. Absent a recovery in the global economy, manufacturing performance will continue to languish and weigh down on overall GDP growth outlook. Indeed, downside risks are certainly piling up. Against the backdrop of a second quarter GDP contraction, risk of a technical recession, albeit still low, should not be dismissed entirely,” DBS warned.