Why Singapore industrial output's 6.2% jump isn't too impressive

The previous months were too disappointing.

According to DBS, March industrial production index reported a 6.2%MoMsa expansion but this is not enough to nullify the decline in the previous two months. Overall industrial output still contracted by an average pace of 1.1% MoM sa for the first three months of the year.

DBS has revised its GDP growth forecast for 2013 to 2.5%, down from 3.2% previously. This revision is made mainly on account of a slower than expected growth momentum in the first quarter.

DBS also said that economic activities were sluggish accordingly to the first quarter advance GDP estimates. The economy is likely to have contracted by 1.4% QoQsaar (-0.6% YoY). While much of this “deceleration” is nothing more than reflecting the highly distorted manufacturing related data over the first two months, particularly due to the Lunar New Year effect,the much anticipated rebound in March was not encouraging either, and certainly not enough to offset the earlier drops.

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That is, although an upward revision to the first quarter GDP to 0.2% QoQ saar is on the cards due to the rebound in March numbers,the growth trajectory for the entire year has been lowered due to a weakerthan expected growth in the first quarter.

This largely reflects the lacklustre growth momentum in the global economy thus far. China’s economic growth in the first quarter has disappointed and economic data from the US has unanimously turned south.

Plainly, while we maintain the view that this year could mark the start of a gradual normalisation process for the global economy, the recovery path isstill expected to be tepid.

Moreover, the Singapore economy is also hampered by the current restructuring process. The supply side constraint due to the curbs in inflow of foreign workers imposed by the government has continued to weigh down on growth performance.

Growth will remain below potential while inflation willstay higherthan normal.

This year will be another year when the growth rate will come in below the inflation rate. So despite the anticipated gradual cyclical improvement,
overall growth outlook remains weighed down by thisstructural drag.

Overall, the story behind ourforecast has not changed. A more pronounced improvementisstill expected in the second half ofthe year. Thisrevision largely reflects a re-calibration of our view in terms of the current growth pace given the data thus far. Ourfull year GDP growth forecastfor 2014 remains unchanged at 4.0%.