Singapore economy speeds up in Q4, government warns of U.S. policy risks

Last Updated: Fri, Feb 17, 2017 10:24 hrs
Office workers walk to the train station during evening rush hour in the financial district of Singapore

By Masayuki Kitano and Fathin Ungku

SINGAPORE (Reuters) - Singapore's economy grew at a faster pace in the final three months of last year than initially thought, but the government warned the outlook remained hostage to policy and protectionist risks in the United States.

That uncertainty was reflected in the affluent city state retaining its 2017 growth forecast in a wide 1.0 to 3.0 percent range, underscoring the small, open economy's vulnerability to external headwinds.

"If protectionist approaches become the norm, global trade will be adversely affected, with knock-on effects on economic growth worldwide," the Ministry of Trade and Industry (MTI) said in a statement accompanying revised GDP data on Friday.

The ministry's cautious tone took some of the shine off a surge in manufacturing, which lifted economic growth to 12.3 percent in the fourth quarter from the previous three months on an annualised and seasonally adjusted basis, bouncing from a contraction of 0.4 percent in the third quarter.

That was up from the government's initial estimate of a 9.1 percent expansion and compared with expectations of 12.6 percent growth.

Still, full-year 2016 growth of 2.0 percent was barely above the 1.9 percent rate clocked in 2015 - the weakest since 2009, knocked by falling exports and cooling demand from major trading partner China.

The challenge for policymakers in Singapore, and other export-reliant regional economies, is how to navigate rising risks of protectionism under U.S. President Donald Trump and an increase in funding costs as the Federal Reserve steps up the pace of rate hikes.

"Domestic sectors will be dragged down by higher interest rates, a still weak real estate market, and subdued consumer demand," said Trinh Nguyen, Hong-Kong based economist for Natixis.


The positive impulse in exports growth, thanks to a bounce in electronics shipments, towards the end of 2016 has seen many analysts predicting the central bank will keep its exchange-rate based policy on hold this year.

Nonetheless, the trade ministry flagged potentials risks, saying further tightening in Chinese policy could result in a sharper-than-expected slowing in growth in the world's second-biggest economy.

Singapore's key oil and gas sector is also struggling to recover from tumbling oil prices.

Earlier this week, Singapore's two-biggest lenders DBS Group Holdings and OCBC both reported falls in quarterly profit and booked higher provisions for bad loans, hobbled by debt payment woes in the city-state's oil service sector.

The manufacturing sector grew an annualised 39.8 percent from the previous quarter compared with a 5.0 percent contraction in the third.

Singapore's trade agency, IE Singapore, slightly revised up its forecast for non-oil domestic exports (NODX) in 2017 to 0.0 to 2.0 percent growth, from its previous forecast of -1.0 to +1.0 percent.

Exports fell 2.8 percent in 2016.

Capital Economics' Asia economist Krystal Tan took a dim view of the trade outlook: "Growth in Singapore's key export markets looks set to stay fairly anaemic, so hopes for a robust and sustainable export recovery are likely to disappoint."

To be sure, the Singapore government didn't shy away from acknowledging the headwinds.

"Political risks and the lack of clarity on the policies of the new U.S. administration have also heightened economic uncertainties globally," MTI said.

(Additional reporting by Anshuman Daga; Editing by Shri Navaratnam)

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