Chan Chun Sing

Chan’s ministry announces 4.4% impressive 1Q growth but analysts “scratching head”

The Ministry of Trade and Industry under the new Minister Chan Chun Sing announced on Thursday (24 May) that the Singapore economy grew by 4.4 per cent on a year-on-year basis in the first quarter of this year. This was in fact, higher than the 3.6 per cent growth in the 4th quarter of last year.

As such, MTI said it now expects the GDP growth for this year to be “2.5 to 3.5%”, revising from its previous estimates of “1.5 to 3.5%”.

“Taking into account the strong performance of the Singapore economy in the first quarter and the slightly improved external demand outlook for Singapore, MTI expects GDP growth for 2018 to come in at 2.5 to 3.5 per cent,” it said.

MTI highlighted that the manufacturing sector grew by 9.8 per cent in 1Q, extending the 4.8 per cent growth in the previous quarter.

“The sector’s growth was primarily driven by the electronics, precision engineering and chemicals clusters, which expanded by 19.2 per cent, 14.0 per cent and 10.0 per cent respectively,” it said.

“On a quarter-on-quarter seasonally-adjusted annualised basis, the manufacturing sector expanded by 22.1 per cent, a turnaround from the 14.8 per cent contraction in the preceding quarter.”

MTI added, “In particular, the manufacturing sector is likely to continue to expand on the back of sustained growth in the electronics and precision engineering clusters, albeit at a more moderate pace as compared to 2017.”

“Likewise, outward-oriented services sectors such as finance & insurance, transportation & storage and wholesale trade are projected to continue to benefit from healthy external demand,” it also said.

“Growth is also expected to broaden to domestically-oriented services sectors like retail and food services over the course of the year, on the back of an improvement in consumer sentiments amidst the on-going recovery in the labour market.”

Analysts scratching head

But the impressive figures quoted by Chan’s ministry did not excite industry analysts and economists. Many are puzzled by MTI’s announcement.

As reported in the media today (26 May), the analysts are scratching their head, trying to reconcile the data showing that electronics production continues to expand while electronics exports have contracted in the past few quarters.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said they remain “somewhat perplexed” about this persistent divergence.

UOB economist Francis Tan agreed, “There is no reason to keep producing electronic products… without exporting them.”

The declining electronics exports do not quite gel with how industrial production is still powering along and why the Purchasing Managers’ Index (PMI) has stayed in expansionary mode, economists said.

Maybank Kim Eng’s Mr Chua and Ms Lee added, “The divergence in electronics exports and production could be in part because orders, while being booked in Singapore, are produced and shipped from outside, for example Penang.”

Likewise, UOB’s Mr Tan is cautious about the picture painted by the mixed data and expects growth to moderate over the coming quarters. He noted that the monthly PMI showed that electronics purchasing managers have collectively reported the highest levels of inventories since April 2011, while new orders have been on a downward trend since Nov 7.

Last month, the manufacturing output was reported to have continued to grow at 9.1 per cent but most economists do not expect the momentum to be sustained.

In the meantime, neither MTI nor Chan has explained about the “perplexing” divergence of the manufacturing output and export figures, as highlighted by the industry analysts and economists.

What do you think is going on?