Factory output, export growth tipped to boost Q3 GDP

Singapore

SINGAPORE'S economic showing in the July-to-September period will likely be upgraded from earlier flash estimates, on better-than-expected factory output and export growth.

Watchers tip a year-on-year contraction of 5.5 per cent for the third quarter, according to a Bloomberg poll - better than the official advance estimate of a 7 per cent decline.

But whether the momentum can be sustained is up in the air, as full recovery will depend on both continued manufacturing strength and a rebound in services and construction.

"The negative year-on-year growth trend has further to run for at least couple more quarters, until a low base effect swings it back into positive territory in Q2 2021," said Prakash Sakpal, Asia senior economist at ING.

While preliminary numbers from the Ministry of Trade and Industry (MTI) were based on data from July and August, the 24.2 per cent surge in September's industrial production later buoyed hopes of an upward revision in the final quarterly GDP print.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

That's as manufacturing was the only sector in the black in the MTI preliminary data, at 2 per cent growth.

"We believe the positive surprise in September manufacturing activity as well as likely better-than-expected services activity likely offset unexpectedly weak construction activity," said Barclays economist Brian Tan, referring to the estimated 44.7 per cent year-on-year decline in construction.

Besides better-than-expected factory performance, analysts are holding out for an improvement in the services sector, which was tipped to shrink by 8 per cent in the flash data.

The retail trade and transport and storage services industries could be due for a pick-up, alongside real estate business services, Maybank Kim Eng economists have said in a note.

Maybank Kim Eng's Lee Ju Ye told The Business Times that the economy should improve again, with a projected decline of 4 per cent in the last quarter taking the full-year contraction to a possible 5.7 per cent in 2020.

Manufacturing growth will likely cool but stay positive, while construction and services will continue to normalise, she said, noting that construction work has resumed with virus outbreaks in foreign worker housing brought under control in the quarter.

"On the services sector, domestic-oriented sectors including retail trade and food and beverage services will likely pick up as residents spend their holidays in Singapore," Ms Lee added.

Mr Tan agreed, citing the domestic containment of Covid-19 and relaxation of restrictions. He said: "While it will be hard to sustain the recent strength in manufacturing activity, the services sector should continue to lead the way in the economic recovery."

Similarly, Nomura South-east Asia economist Charnon Boonnuch said smaller drops in construction and services will offer support and added that "we also expect manufacturing to hold up, helped by the still-strong electronics output given the global tech upcycle".

Yet Mr Sakpal took a different tack, arguing that "it's still premature to anticipate any material recovery in construction or services sectors" given weak business and consumer sentiment.

Even on the manufacturing front, an export-led recovery could be stymied by the resurgence of Covid-19 in Singapore's main trading partners, he added, citing the shock decline in non-oil domestic exports in October.

Exports most recently snapped a four-month winning streak to fall 3.1 per cent, according to data this week.

OCBC chief economist Selena Ling, who expects global growth to come on the back of a vaccine, suggested the MTI will forecast growth of either 3-5 per cent or 4-6 per cent for 2021 - "depending on how cautious they are about the sustainability of the recovery story".

Still, she warned that the logistics and cost of a vaccine roll-out remain unclear, while geopolitical uncertainties such as South China Sea tensions continue to cast a pall globally.

Despite the upcoming transition from hawkish US President Donald Trump to Democratic incomer Joe Biden, Ms Ling added: "A Biden presidency does not wipe the slate clean for any potential US-China tensions, even if trade issues are de-escalated."

Closer to home, Nomura's Mr Boonnuch told BT: "For 2021, we remain concerned about the labour market conditions, which continued to deteriorate, especially within the tourism-related sectors. In our view, this could continue to drag on the pace of the recovery in domestic demand."