Why an upward revision is on the cards for Singapore economy

GDP growth forecast seen to be raised to 3.5-4%.

According to DBS, an upward revision is on the cards for 3Q13 GDP figures, which will be announced tomorrow morning. DBS expects the headline number to be raised to 0.3% QoQ saar (5.5% YoY), up from the advance estimates of -1.0% QoQ saar (5.1% YoY).

Here's more from DBS:

The advance estimates assume that industrial production will grow by 7.0% YoY in September. But a surprise spike in the electronics output saw overall industrial production surged by 9.3% in the month. This is further reaffirmed by a strong showing in electronics exports in October.

Indeed, growth in the manufacturing sector will likely register 5.5% YoY instead of the advance estimate of 4.5%. Barring any significant revision to the growth figures for the construction and the services sectors, the better manufacturing growth will imply a 0.28%-pt increase in the headline GDP growth number and an upward revision in the 3Q13 GDP figures.

Moreover, the services and the construction sectors are likely to perform better than predicted on account of the improved global economic conditions. Strong improvement in regional growth outlook will buttress expansion in the trade related, tourism and financial services sectors. Construction sector growth will likely be revised as well on still healthy project pipeline despite margin compression.

On top of the revision in 3Q13 GDP, growth figures for the first two quarters of the year have been revised upward recently. Arithmetically, this has lifted the growth trajectory for the entire year. Full year GDP growth is expected to register 3.8%, which is above consensus and higher than the official forecast range of 2.5-3.5%.

In fact, we can expect the official GDP growth forecast to be raised to 3.5-4.0% this Thursday. The reason is simple. Even if the economy remains stagnant in the third and fourth quarter, that is, zero growth on the margin, full year growth will still be able to clock 3.6%. Moreover, chance of a sharp sequential pullback in 4Q13 appears low at this juncture given the outlook in the global environment.

Growth outlook in the G3 economies is improving while China’s growth momentum is also picking up. We expect such growth momentum to persist into 2014.

These factors will keep Singapore’s GDP growth at a healthy pace in the coming quarters. Sequential growth is likely to average a healthy 4.2% QoQ saar per quarter, which will then bring 2014 GDP growth to 4.0%.