Singapore economy picks up speed in Q4, but Trump threat looms large

A container vessel docks at the Tanjong Pagar Terminal in Singapore.
Suhaimi Abdullah | Getty Images

Singapore's economy grew at a faster pace in the final 3 months of last year than initially thought, revised data showed, but the city state faces fresh challenges amid rising concerns of trade protectionism under U.S. President Donald Trump.

A sharp surge in factory output helped the economy grow 12.3 percent in the October-December period from the previous three months on an annualized and seasonally adjusted basis, the Ministry of Trade and Industry (MTI) said on Friday.

That was up from the government's initial estimate on Jan. 3 of a 9.1 percent expansion and compared to the median forecast in a Reuters survey of 12.6 percent growth, giving hope of a moderate pick up in momentum for the affluent city state after more than two years of low growth.

But analysts and the government remain cautious about the outlook due to external headwinds from worrying signs of protectionism in the United States, and domestic challenges of a weak services sector and slowing banking sector profits.

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"If protectionist approaches become the norm, global trade will be adversely affected, with knock-on effects on economic growth worldwide," MTI said, adding that Britain's decision to exit the European Union also remains a threat to the outlook.

The uncertainty was underscored by the government retaining 2017 growth forecast at 1.0 to 3.0 percent, compared with an upwardly revised 2.0 percent growth for last year, from 1.8 percent in the government's advance estimate.

Policy uncertainty

Falling exports and slack demand in its key trade partner China depressed Singapore's economy for much of the past two years, but a turn for the positive on both fronts towards the end of 2016 has seen many analysts predicting the central bank will keep policy on hold this year.

"I think the bottom of the (growth) cycle was somewhere in the third quarter last year, so we are definitely off the bottom," said Irvin Seah, economist at DBS Bank.

Most forecasters concede that the more sanguine view is hostage to the heightened uncertainty stemming from the Trump factor. A revival in manufacturing would be a plus, though the pain inflicted on the key oil and gas sector from tumbling oil prices have yet to ease off.

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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 annualized 39.8 percent from the previous quarter compared with a 5.0 percent contraction in the third. From a year earlier, the sector expanded 11.5 percent.

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.

NODX fell 2.8 percent in 2016, while total merchandise trade shrank 4.9 percent last year, the trade agency said.

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