Why the 7.9% surge in services sector won't likely be sustained in 2Q13

Expect not so good news.

According to DBS, the crux of the issue still lies in the services sector. As we have always been highlighting, the performance of the services sector will have strong bearing on the overall outlook of the economy. And this sector has been clocking pretty commendable growth performance since 4Q12.

While the 7.9% QoQ saar surge in the previous quarter will likely not be sustained in the second quarter due to possible moderation in the business services, other services and tourism related services, strong trading volume in the financial sector and improvement in trade-related activities should keep the overall services growth at fairly healthy level.

Here's more from DBS:

Indeed, a modest uptick in the year-on-year growth to 3.0%, from 2.7% previously is expected.

Throw in another decent quarter of growth from the construction sector andthere is enough for market to cheer about. Indeed, the construction sector will probably post another good showing with an expansion of about 6.8% YoY.

The on-going public transportation projects as well as a healthy pipeline of residential projects are keeping the construction companies busy.

That is, a good outcome is on the cards tomorrow and in fact, any upside surprise should not come as a surprise at all. Yet, it should also be noted that the global outlook remains dicey. The growth path for the developed economies such as the US and Europe are expected to be placid.

And with China now targeting a slower growth pace, second quarter growth will look more like a “technical rebound” for the slump in the first quarter. Beyond that, growth profile will look flattish. Our full year GDP growth forecast remains at 2.5%.