Why analyst isn't too happy about Singapore's 3Q advance GDP figures

A lot can happen in one month.

According to DBS, one has to take the advance GDP estimates with a pinch of salt. They are based on two months of data. Given the small and open nature of the economy, a lot can happen in a month that can skew the final outcome.

Here's more:

Moreover, figures within the services and the construction sectors are often subjected to significant
revision.

In fact, there were countless occasions in the past when the difference between the advance numbers and the final figures was significant.

For instance, the advance growth figure for 2Q12 was initially reported as -1.1% QoQ saar. But it was eventually revised to 0.1%. That is, from a contraction to an expansion.

Subsequently, the 3Q12 GDP growth was reported as -1.5% QoQ saar but was eventually revised down to -4.6%. That’s a massive 3.1%-pts difference. In addition, GDP growth for 1Q13 changed from a contraction of -1.4% QoQ saar to an expansion of 2.3%. From negative to positive again, and by a full 3.7%-pts!

So when the third quarter advance GDP figures for the economy announced recently reported a better than expected showing of -1.0% QoQ saar (consensus:-4.0%), you have to take the reported numbers with a pinch of salt.

Don’t besurprise if there is going to be a significant revision to the numbers. And in our opinion, the revision will be downwards.

The story behind is that the manufacturing sector could possibly disappoint. Industrial production (IPI) growth has averaged 3.3% YoY in Jul-Aug. The advance estimate of 4.5% YoY for the manufacturing sector in the third quarter essentially assumes that the production output will surge by about 7% in September.

That will make it the strongest monthly IPI growth since June last year. And odds are against that given the fairly weak export performance in September.

Headline NODX slipped by 1.2% YoY with poor showings from both key electronics and pharmaceutical clusters. Yet, the main driver was the petrochemical cluster, which saw sales up by 35.3% YoY.

Increased capacity in the petrochemical industry probably has led to this strong showing. Indeed, petrochemical exports have been growing by about 20-30% over the last three months.

This may be the reason why officials are optimistic about the manufacturing growth in the third quarter and announced the better than predicted advance GDP figures.

So stay tuned for September IPI this week, which will provide a clearer picture on the GDP growth and of course, whether a massive revision in the advance GDP estimates is on the cards.