Singapore GDP contracts in Q4, sluggish manufacturing growth hurts

Data shows GDP contracted 2.7% in the final quarter of 2013 from the July-September period

Singapore's economy contracted more than expected in the fourth quarter as manufacturing activity weakened, data showed on Thursday, casting some doubt on market expectations for a slight pick-up in growth over 2014.

According to advance estimates from Singapore's Ministry of Trade and Industry, GDP contracted an annualised and seasonally adjusted 2.7% in the final quarter of 2013 from the July-September period.

That reversed a 2.2% expansion in the third quarter and was weaker than the median 1.6% contraction forecast in a Reuters survey.

"I think the weakness is in the manufacturing side. After...some hopes that the manufacturing recovery is finally showing up more visibly, it looks as if it's sputtering again," said Chua Hak Bin, head of emerging Asia economics for Bank of America Merrill Lynch.

"Overall the story is that growth is still largely led by a more steady services sector," he added.

The manufacturing sector contracted at an annualised rate of 4.0% in the fourth quarter from the previous quarter, while year-on-year manufacturing growth moderated to 3.5% compared to 5.3% in the third quarter.

The services sector contracted an annualised 1.7% quarter-on-quarter, but grew 5.5% year-on-year.

"To put this in perspective it follows a very strong second quarter and a positive third quarter," said Credit Suisse economist Michael Wan, who is forecasting growth in 2014 will be 4.0%, up on the 3.7% seen in 2013.

Wan expects the economy to be supported over coming months by an improvement in external trade, although some sectors, especially retail and hospitality will feel the pressure of tighter government controls on hiring foreign labour.

In the second quarter, Singapore's GDP had expanded by an annualised 17.1% quarter-on-quarter as manufacturing activity surged.

One question mark going forward is whether the manufacturing sector for Singapore is as leveraged to the global economy as it was in the past, said Chua at Bank of America Merrill Lynch.

"It looks as if the restructuring and the stricter foreign worker policy is dampening growth," Chua said, adding that Bank of America Merrill Lynch's forecast is for full-year growth in 2014 to slow to 3.2%, down from the 2013 growth of 3.7%.

At this stage, the Monetary Authority of Singapore looks likely to stick to its tight monetary policy stance at its next policy review in April, since inflation has been picking up, Chua added.

At its last policy-setting decision in October, Singapore's central bank maintained its stance of allowing a "modest and gradual" appreciation of the Singapore dollar and warned that core inflation was likely to accelerate in 2014.

The Singapore government's forecast is for the economy to grow by 2-4% this year, while a central bank survey of forecasters in December showed that Singapore's economy is seen likely to expand at 3.9% in 2014 as exports recover.