SINGAPORE (March 6): Singapore has received some much-needed good economic news of late, with economic growth and exports surprising to the upside. However, the external environment could grow more challenging if protectionism and populism do take root in key markets. Two major policy initiatives by the government were released recently — the report of the Committee on the Future Economy (CFE) and the Budget statement. Here is our take on Singapore’s economic prospects and whether the policy responses will suffice for the country.

The economy is turning around; upside surprises likely
Singapore’s economy enjoyed its fastest growth in about two years, expanding 2.9% y-o-y in the fourth quarter last year, surging from 1.2% in 3Q2016 as the rebound in external demand boosted manufacturing activity.

• Manufacturing jumped 11.5% y-o-y in 4Q2016, up from 1.8% in 3Q2016 as the turnaround in global demand powered Singapore’s electronics and biomedical manufacturing clusters. In fact, the January acceleration in exports tells us the trade-led cyclical recovery has legs — exports grew 11.1% last month, up from 9.2% in December. Encouragingly, this bounce is broadly based and boosting export-facilitating activities such as transport and storage;
• Near-term outlook looks good, for now: Singapore’s composite lead indicator has been rising in recent quarters, suggesting continued overall economic growth. The forward-looking indicators for global demand, such as the Organisation for Economic Cooperation and Development lead indicator and new orders in purchasing manager surveys, provide strong evidence that the export rebound will be sustained. Interestingly, the latest data from the eurozone shows the economy accelerating nicely, giving global demand more legs to depend on than just the US;
• But some sectors continue to languish: The construction sector actually contracted 2.8% y-o-y in 4Q2016, worsening from a fall of 2.2% in 3Q2016, as private construction activity withered. Overall, the services sector (which contributes to two-thirds of the economy) disappointed, barely eking out growth of 1% in 4Q2016. Financial and business services are struggling, offset by sectors such as social services, which are benefiting from ramped-up government expenditures on eldercare and healthcare.

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