Singapore fourth-quarter GDP up 1.8 percent on-year, well above forecasts

Singapore GDP surprises on the upside

Singapore's economic growth surged in the fourth quarter, rising 1.8 percent from a year earlier, handily beating a Reuters forecast for a rise of just 0.6 percent.

On a quarterly basis, gross domestic product (GDP) jumped 9.1 percent, official data showed on Tuesday, compared with a Reuters forecast for 3.7 percent growth. That was up from the third quarter's contraction of 1.9 percent on-quarter.

For the full year, Singapore's economy grew 1.8 percent, beating forecasts, but still the lowest since 2009, during the global financial crisis. The government had forecast 2016 GDP growth at 1.0-1.5 percent.

The Singapore dollar had a volatile reaction to the data, with the dollar fetching as much as 1.4518 Singapore dollars immediately after the release, before quickly retracing to around S$1.4492 at 8:09 a.m. HK/SIN, compared with around $1.4498 before the data.

Selena Ling, head of treasury research and strategy at OCBC, told CNBC's "Squawk Box" on Tuesday that the beat was due to strong manufacturing figures.

"Generally, we think that manufacturing is the tide that's lifting the boat now, because services is slowing down and construction is also softening," she said. "The November manufacturing numbers were already surprising on the upside, but I think this set of numbers does suggests that manufacturing is seeing a nice bounce."

Nicky Loh | Bloomberg | Getty Images

The manufacturing sector grew 14.6 percent on-year in the fourth quarter, annualized and seasonally adjusted, compared with the third quarter's contraction of 8.1 percent on-quarter. Manufacturing expanded 6.5 percent on-year, primarily on the electronics and biomedical segments.

The services sector grew just 0.6 percent on-year in the fourth quarter, slightly up from the third quarter's 0.3 percent on-year increase.

But Ling didn't hold out much hope that Singapore's growth would strengthen much ahead.

"The domestic structural challenges are still there. We still have a high cost environment and I think the labor market is softening," she said. "We have seen the retrenchments as well as the net employment numbers come off a fair bit from the previous years, so I think the belt tightening for the households, it's ongoing. Even the employers are turning a little bit more cautious."

Redundancies in the first nine months of the year hit their highest since the first nine months of 2009, during the global financial crisis, government data in December showed.

Economists had turned more bearish on the city-state's economy recently. The December survey of professional forecasters, sent out in late November, by the city-state's central bank, the Monetary Authority of Singapore (MAS), found economists had cut their outlook for this year's growth to 1.4 percent from 1.8 percent in the September survey.

They expected Singapore's economy would grow just 1.5 percent in 2017 on average, down from the September survey's forecast for 1.8 percent and the June survey's projection of 2.1 percent. The latest forecasts for 2017 growth ranged from 0.7 percent to 2.3 percent. The December survey, which had 22 respondents, doesn't reflect the MAS' own forecasts.

Singapore's small, open economy has been buffeted by declines in global trade as well as its exposure to sharp drops in commodity prices.

The trade-dependent economy was also likely to be battered if U.S. President-elect Donald Trump actually fulfills his vows to pursue anti-trade measures, such as tariffs. Additionally, Trump's policies were widely expected to boost inflation and interest rates in the U.S., which would pressure financial conditions in the city-state.

OCBC's Ling said Trump was the main uncertainty for the city-state in 2017, particularly on global trade and China.

On the campaign trail, Trump repeatedly accused China of manipulating its currency in order to give its exports an advantage over U.S.-made goods, and he threatened to slap a tariff of up to 45 percent on Chinese imports.

"If you do get a tit-for-tat type of trade dispute between the U.S. and China, for instance, then that's going to have spillover effects on the rest of Asia," Ling said.

Singapore's Prime Minister Lee Hsien Loong appeared to allude to these issues in his New Year speech.

"The world around us is in flux. These are difficult and uncertain times," Lee said on Saturday.

"In developed countries, a mood of nativist nationalism has grown. There is profound angst and discontent with the impact of technology and globalization. People want to shut themselves off, to insulate themselves from foreign competition. This will most likely hurt themselves and fail to improve their lives."

Lee said that as a small country, Singapore couldn't close itself off and instead needed to reinvent itself to compete.

He noted that the government was working to help re-train workers and help industries transition for global developments.

Lee also noted that the Trans-Pacific Partnership (TPP) trade deal's prospects had "dimmed" -- Trump campaigned on a platform of killing the deal -- but the Singapore leader added that the city-state would pursue cooperation through other avenues, notable the Regional Comprehensive Economic Partnership (RCEP), which is a more China-centric regional trade deal, excluding the U.S.

But Lee did sound a note of caution, saying that economic growth was "still positive though less than we hoped for."

Among economists, Ling wasn't alone in being downbeat on the city-state's prospects for the year ahead.

"We do not expect the Singapore growth outlook to improve materially in 2017," Weiwen Ng, an economist for Southeast Asia at ANZ, said in a note on Tuesday, adding that the bank forecast 2017 growth at 1.4 percent, at the low end of the government's 1-3 percent forecast range.

"Prospects of a more protectionist trade policy would be negative for Singapore, [which] is wedded to the old export model and this will have knock on impact on domestic incomes. Consequently, domestic demand weakness should continue to weigh on an already subdued labor market," he said.

But he noted that the government was likely to step up fiscal measures in the upcoming budget, offering support to both households and companies.

Mizuho was even more pessimistic, calling the fourth-quarter GDP beat "hollow cheer" and an unsustainable "flash in the pan."

"Despite a bottoming expected at (still) weak levels in oil-related industries, the rest of the manufacturing remains tentative, depending to a large extent on China's fortunes and a potentially dampened demand from U.S. protectionism," Mizuho said in a note on Tuesday.

"Weakness in services, which contracted (quarter-on-quarter) from the first quarter through the third quarter, may prove difficult to shake off if rising global interest rates pressured the property sector further."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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