SINGAPORE (July 21): VP Bank is anticipating a moderate acceleration of Singapore’s economic growth rates to take place in the coming quarters on stronger manufacturing output.

The boutique private bank is “neutral” on Singapore on the belief that its fundamentals show a clear pattern of further economic strength, with a projected focus on financials and consumer spending.

In its Investment Navigator Asia 3Q 2017 report, VP Bank opines that this year could mark a turnaround for Singapore’s economy, with improvements in gross domestic product (GDP) and earnings growth.

It forecasts an average P/E ratio, earnings per share (EPS) growth and dividend yield of 13.3, 7.6 and 3.8% respectively, for Singapore in 2018E.

In particular, the bank sees good chances for the city state’s banks, manufacturing and consumer discretionary to see earnings upgrades over the second half of the year – although transport is expected to suffer further from low profitability and tough competition.

“We assume a more mixed picture going forward while the positive impact on earnings and growth surprise is gone now,” states VP Bank in its report issued on Friday.

“The labour market is also under moderate pressure with the unemployment rate rising to a six-year high of 2.2%. In an international comparison this is still very positive,” it adds.  

Nonetheless, VP Bank cautions that the growth should be narrowly-based on semiconductor manufacturing and precision engineering, with the rest of the economy, especially domestic-focused industries such as retail and construction, remaining weak.

In terms of monetary policy, the Monetary Authority of Singapore’s (MAS) cautious view as expressed in its latest statement – which signals that upside inflation risks were limited and that the labour market has “slackened since the last policy review” – meets VP Bank’s expectations.

The bank is expecting the continued tightening of foreign labour supply, as part of the nation’s economic restructuring agenda, to sustain labour cost pressures. This, along with electricity tariff adjustments, will sustain 2017 inflation rates above 2016 readings, in its view.

“If the Chinese authorities decide to further devalue the yuan this year, then this will have implications for the monetary policy in Singapore. The MAS will then prefer a weaker currency in the coming quarters. In any case, as inflation is in retreat, there is no reason to expect a substantial appreciation of the SGD against the USD,” says VP Bank.