Singapore escapes technical recession

S ingapore’s

economy grew in the second quarter, dodging a recession thanks to solid global demand for its tech products, though some analysts caution that rising rates in the United States could lift local borrowing costs in a blow to household spending.

The affluent city-state has been among a number of export-reliant Asian economies to benefit from a general uptick in global demand since late last year, enjoying strong sales of its semiconductors and semiconductor manufacturing equipment — a factor that has boosted manufacturing output over the past year.

The economy expanded 0.4% in the AprilJune period from the previous three months on an annualised and seasonally adjusted basis, the Ministry of Trade and Industry’s advance GDP estimate numbers showed yesterday.

Revisions to first-quarter data showed the economy contracted by 1.9% in JanuaryMarch, weaker than the 1.3% contraction estimated earlier.

The April-June quarter-on-quarter growth was lower than a Reuters poll’s median forecast of 1.1%, but analysts said it was still in line with their overall growth forecast for the city-state.

Besides weakness in construction, the services sector was also “soft,” analysts said, and partly the reason why GDP growth undershot expectations.

“The miss in the second quarter was due to weak services output, likely reflecting tepid private consumption and a deceleration in wage growth,” HSBC analysts said in a research note.

Growth in electronics exports has been one of the highlights of Asia’s export recovery this year, boosting profits for companies tied into supply chains such as Apple Inc’s, which is gearing up for the launch of the iPhone 8.

While analysts voiced concern about Singapore’s dependence on its electronics industry, they said any moderation in growth could be offset by the service sector.

“If you look at just the pace of manufacturing growth, that is probably not sustainable as it will ease, but I think it will be compensated by services sector,” Mizuho Bank economist, Vishnu Varathan, said.

Economists surveyed by Singapore’s central bank last month raised their 2017 Singapore growth forecasts, upgrading their views on manufacturing and bank lending.

A majority of analysts believe that the Monetary Authority of Singapore (MAS) will keep monetary policy steady when it holds its next policy meeting in October.

The MAS runs a managed exchange rate regime that ties interest rates in Singapore closely to the Fed funds rate

However, expectations that the US Federal Reserve will increase interest rates has made the outlook more uncertain.

“The outlook for the rest of the economy is less promising,” said Capital Economics’ analyst, Gareth Leather in a research note, adding that the risk of higher interest rates “could pose problems for Singapore’s highly indebted households.

“Local interest rates have started to rise, and are likely to increase further if we are right that the US Fed will hike rates fairly aggressively in the next couple of years.”