Man­u­fac­tur­ing helps drive strong Q3 growth

Ad­vance data shows econ­omy ex­panded at fastest pace since 2014, beat­ing fore­casts

The Straits Times - - FRONT PAGE - Chia Yan Min Eco­nom­ics Cor­re­spon­dent

The econ­omy ex­panded at its fastest pace in more than three years in the July to Septem­ber quar­ter, buoyed by the surg­ing man­u­fac­tur­ing sec­tor.

De­spite the strong show­ing, the cen­tral bank opted to keep its ex­change rate pol­icy stance un- changed, but said that it ex­pects more sta­ble and even growth in the com­ing year.

The econ­omy ex­panded 4.6 per cent in the third quar­ter com­pared with the same pe­riod a year ear­lier, ac­cord­ing to Trade and In­dus­try Min­istry ad­vance es­ti­mates re­leased yes­ter­day, which take into ac­count data from the first two months of the quar­ter.

This beat econ­o­mist fore­casts of 3.8 per cent growth, and was also the fastest quar­terly ex­pan­sion since 2014.

The bet­ter-than-ex­pected per­for­mance was lifted by a stel­lar show­ing in man­u­fac­tur­ing, which surged 15.5 per cent over the same pe­riod a year ear­lier. The sec­tor, which makes up a fifth of the econ­omy, has been its bright­est spot this year, thanks to strong global de­mand for semi­con­duc­tors and re­lated gear.

Ser­vices – which makes up twothirds of the econ­omy and em­ploys the bulk of work­ers – grew 2.6 per cent, boosted largely by trade-re­lated seg­ments such as fi­nance and in­sur­ance, whole­sale and re­tail trade and trans­porta­tion and stor­age.

But the con­struc­tion sec­tor shrank 6.3 per cent year on year, amid lacklustre pri­vate-sec­tor build­ing ac­tiv­ity.

“The main story be­hind the eco­nomic growth num­bers is that re­cov­ery is broad­en­ing out,” said DBS se­nior econ­o­mist Irvin Seah.

“Third-quar­ter growth will likely be the strong­est this year. Growth could ease a tad in the com­ing quar­ters as the econ­omy shifts from a re­cov­ery to a nor­mal­i­sa­tion phase.”

The Mone­tary Au­thor­ity of Sin­ga­pore (MAS) struck a more up­beat note in its lat­est pol­icy state­ment, which was also re­leased yes­ter­day, even as it an­nounced that it is keep­ing its pol­icy stance un­changed.

The cen­tral bank uses the ex­change rate as its main mone­tary pol­icy tool to strike a bal­ance be­tween in­fla­tion from over­seas and eco­nomic growth. The rate is al­lowed to float within a band that can be ad­justed when mone­tary pol­icy is re­viewed.

The Sin­ga­pore dol­lar band is now on a path of zero ap­pre­ci­a­tion against the cur­ren­cies of key trad­ing part­ners – a “neu­tral” pol­icy stance put in place in April last year amid slow growth and low in­fla­tion.

The econ­omy has per­formed “slightly bet­ter than ex­pected” since its last pol­icy re­view, MAS noted. It ex­pects growth to come in at a steady, but slightly slower, pace next year com­pared with this year, as the global eco­nomic re­cov­ery en­ters a more ma­ture phase.

Growth should also be­come more even across sec­tors in the com­ing quar­ters, as the boost from elec­tron­ics mod­er­ates while the pace of con- trac­tion in other sec­tors lev­els off.

MAS added that eco­nomic ex­pan­sion this year and next will be driven by pro­duc­tiv­ity gains.

Core in­fla­tion, another key fac­tor that goes into mone­tary pol­icy de­ci­sions, will also inch up next year. It is ex­pected to come in at around 1.5 per cent this year, and av­er­age 1 per cent to 2 per cent next year.

Yes­ter­day’s stronger data led some econ­o­mists to re­vise their fore­casts for full-year eco­nomic growth up­wards, with some say­ing it could come in above the of­fi­cial fore­cast range of 2 per cent to 3 per cent.

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