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Singapore’s growth miss may be the canary in the coalmine

Singapore Q3 GDP figures 'pretty grim': OCBC

Singapore's growth in the third quarter badly missed expectations on Friday, potentially signaling weakness around the region.

The city-state's gross domestic product (GDP) grew 0.6 percent on-year in the third quarter, well off forecasts for 1.7 percent growth from a Reuters poll and the weakest reading since 2009, during the global financial crisis.

GDP also contracted 4.1 percent on-quarter, compared with a Reuters poll forecast for 0.3 percent growth.

"Singapore being a small open economy, basically we are like a harbinger," Selena Ling, head of treasury research and strategy at OCBC, told CNBC's "Squawk Box" on Friday. "You can expect the next few weeks when we get third quarter growth numbers coming out from the rest of the Asian economies, probably you'll see weaker than expected numbers as well."

She called Singapore's data "pretty grim," noting that even the most bearish forecast hadn't called such weak figures.

Despite the weak data, Singapore's central bank, the Monetary Authority of Singapore (MAS) kept its monetary policy unchanged with a neutral bias for the currency.

Rather than using interest rates, the MAS, which has official policy-setting meetings just twice a year, sets its monetary policy by adjusting an undisclosed trading band for the currency based on a basket of currencies weighted to reflect trade levels with the city-state.

In the wake of the GDP data and the MAS' inaction, the Singapore dollar fell to its lowest level since early March. The U.S. dollar was fetching as much as S$1.3887 by mid-day Friday, up from levels as low as S$1.3770 earlier in the session.

OCBC's Ling said external factors dragged on Singapore's growth.

"Ahead on the horizon, you do have some risk events like U.S. elections. You also have a possible FOMC rate hike in December. So these are pretty big external factors," she said. "The China slowdown story is still on-going so you do have renewed concerns about how much of the softness in terms of the Chinese manufacturing export pattern is going to drag on regional trade growth as well."

She noted that the World Trade Organization (WTO) had already downgraded global trade forecasts for 2016 and 2017. The WTO has projected global trade would register its fifth straight year of sub-3 percent growth, citing shifting exchange rates and falls in commodity prices.

The slowdown was already evident in China's trade figures. Data released Thursday showed China's exports tumbled 10.0 percent in dollar terms in September and imports fell 1.9 percent, coming in well below forecasts from a Reuters poll for a 3.0 percent fall in exports and a 1.0 percent rise in imports.

Tourists take in a cable car take in the sights at Sentosa Island, Singapore
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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter