Singapore Q4 GDP beats forecasts but belies Asian weakness

The country's GDP expanded by 5.7% in the fourth quarter, up from downwardly revised 1.7% growth in third quarter

Singapore's economy posted surprisingly strong growth in the fourth quarter, driven mostly by domestically-focused sectors, which offset weakness in the city-state's export-oriented industries as Asian economic demand continued to slump.

Gross domestic product (GDP) expanded by 5.7% in the fourth quarter on an annualised and seasonally adjusted basis, advance estimates from the Ministry of Trade and Industry (MTI) showed on Monday.

That was up from a downwardly revised 1.7% growth in the third quarter, and well above the median forecast of 1.7 % growth in a Reuters survey.

The strong headline number was bolstered by construction and services sector activity while manufacturing continued to decline, a sign the economy is being fuelled by local demand rather than external demand, which continues to weaken.

“Even though this number is stronger than expected, it remains sub-potential and that sort of 'not that great' growth scenario is present throughout Asia right now," said Vaninder Singh, an economist for RBS.

Services sector activity grew 6.5 % in the fourth quarter while construction rose 7.0 %. The manufacturing sector underperformed, shrinking 3.1 %.

MTI said construction was supported by a pick-up in public sector building while services industries were helped by the wholesale and retail trade as well as the finance and insurance sectors.

"It's difficult to generalise that this is a barometer for the rest of Asia," said Hak Bin Chua, ASEAN economist for Bank of America Merrill Lynch, adding that there are many domestic components in the services sector.

Services sectors in many other Asian countries are not as developed as they are in Singapore, an established global financial centre, he said.

Economists are cautious on Singapore's growth outlook given headwinds such as a slowdown in China, the biggest destination for Singapore's non-oil domestic exports.

China's factory activity contracted for the 10th straight month in December, a private-sector survey showed on Monday, dampening hopes that the world's second-largest economy will enter 2016 on steadier footing.

In a sign investors remain unconvinced that the strong growth momentum will be sustained, the Singapore dollar slid to its lowest level in nearly seven weeks on Monday, reversing a very brief rise after the headline GDP release.

The city-state's benchmark stock index shed 1.3 % on a day when Asian stock markets fell broadly.

Full-year growth for 2015 slowed to 2.1 % from 2.9 % in 2014, in line with the government's forecast and the weakest performance since 2009, when Singapore's economy was hit by the global financial crisis and contracted 0.6 %.

Growth is expected to remain moderate in 2016, with the government forecasting GDP growth of 1.0 to 3.0 %.

Against a backdrop of low inflation and tepid global growth, Singapore's central bank eased monetary policy twice in 2015. The central bank's next semiannual policy review is in April.

"I think for now we don't expect a change because they already eased twice last year," said Selena Ling, head of treasury research and strategy for OCBC Bank.