Singapore’s economy grew by 2.5% year-on-year in the second quarter of 2017 based on the Ministry of Trade and Industry’s advance estimates in a press release last Friday.
Advance estimates are based on data obtained from the first two months of the quarter to indicate how the economy has performed for the quarter. The results were slightly below expectations given economist’s expectations of a 2.7% growth.
The primary driver of growth was the manufacturing sector, which makes up 20% of the economy, expanding by 8.0% year-on-year. The industry has continued to receive a high demand for shipments of semiconductors and related products which has spurred growth in the electronics and precision engineering clusters.
It is unclear if the general demand will continue to remain high. OCBC economist Selena Ling expects that the demand for semiconductors will continue to be healthy “in anticipating the launch of new products like the iPhone 8”.
Others questioned if the demand has already peaked and if the other manufacturing sectors like the general manufacturing, biomedical manufacturing sides will be able to report better results.
UOB’s analysts expect the manufacturing sector to slow down in the latter half of the year, and forecasted an overall 2.4% growth for the year.
The biggest drag on the economy was the construction sector that continues to be “the weakest link”, as described by Maybank’s economists. The sector shrank by 5.6% in the second quarter and has been contracting for four consecutive months.
In the first three months, the construction sector was also a significant drag, shrinking by 6.1% year-on-year.
We managed to narrowly avoid a technical recession – defined as two consecutive quarters of decline in economic output, as the quarter reported 0.4% growth from the first quarter. The first quarter of the year reported a 1.9% contraction.
Economists predict a slower growth in the second half of 2017 with the global trade rally is expected to slow down. DBS analysts predicted a 2.8% GDP growth for the year, but said that there is increasing downside risk to the forecast.
Economists are closely monitoring the service sector, which makes up two-thirds of the economy, to see if it can meet expectations and report better performance to provide stronger support for the economy.
Overall, the road ahead for Singapore’s economy seems bumpy as uncertainties abound and certain sectors which are growing are reporting tepid growth.
For Singaporean investors who are only invested in Singapore’s economy, one needs to take into consideration macroeconomic trends that may suggest weakness in the certain sectors.
Companies may have strong fundamentals but if there is limited demand, all the businesses in the industry will suffer, and their share prices will likely fall.
Therefore, one should bear that in mind and factor that into the valuation of any given company’s stock price, making sure that we have a margin of safety for the unexpected downturn in the sector or continuously weak demand for a period.
Investors can also consider diversifying their portfolios by investing in other countries, or purchasing exchange traded funds (ETF) that tracks the overall performance of a group of countries.
For example, the MSCI world index tracks the performance of large and mid-cap equity performance across 23 developed markets countries. This may be helpful for investors who are may be lacking in investment knowledge, and want to invest for the long term but do not want to only be exposed to the Singaporean economy.
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They’ll be covering topics on personal finance, macroeconomics and investment strategies to help retail investors make more shrewd decisions especially in the current uncertain and volatile economy. Click on the button above to learn more and grab your early bird tickets. See you there!
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