Three reasons why Singapore's 3Q16 economic growth is the worst post global financial crisis

3Q16 GDP growth braked sharply to 0.6% yoy.

The Singapore economy slumped 4.1% qoq saar in 3Q16, the biggest contraction since 3Q12 and underwhelming even the most bearish of the consensus forecasts.

In on-year terms, the 3Q16 growth print of +0.6% for headline GDP and -0.1% for services were both the slowest since 3Q09, post global financial crisis, said OCBC Bank.

OCBC Bank pointed to three reasons for the weak flash estimates.

First, OCBC Bank said that the 1.4% yoy manufacturing expansion we saw in 2Q16 was a blip.

"The stabilisation in the Jul and Aug industrial production data and the return of the latest manufacturing PMI data to >50 (expansion territory) were also likely illusionary," it said.

Looking ahead, OCBC Bank said that the manufacturing growth will likely continue to be weighed down by transport engineering and precision engineering (due to O&G weakness globally), biomedical and general manufacturing clusters.

"The WTO’s recent downgrade of both 2016 and 2017 global trade growth forecasts and China’s latest export data reinforces the grim picture, it explained.

Secondly, OCBC Bank said that the drag from the external demand weakness has now permeated into the core of the Singapore economy, namely the services sector.

It noted that although there are still growth opportunities within selected services industries like infocomms, education, health and social services segments, domestic business and consumer sentiments have clearly softened in line with the labour market conditions.

"With more muted wage growth amid a pullback in hiring intentions, consumption will likely be more restrained," it said.

Lastly, OCBC Bank highlighted that construction remains the only bright spot, expanding by 2.5% yoy (+0.5% qoq saar), lifted by public construction activities notwithstanding the sharper decline in private sector construction activities.

As such, OCBC Bank believes that there is room for stimulative fiscal measures in the FY17 Budget (due in 1Q17), with government spending to underpin the healthcare and education project pipeline.