NOW’S PROBABLY THE time to take heed of Prime Minister Lee Hsien Loong’s advice early last month to “brace for slower growth ahead”. Official figures released on Nov 16 showed that Singapore’s economy – hardwired to global trade and financial links – grew much slower than was expected, with GDP expanding just 0.3% from the year before for the quarter ended Sept. This is significantly lower than the flash estimate of 1.3% put out earlier, and below economists’ projections of around 0.9%.
As expected, growth was dragged down by poor performances in the manufacturing and exports sectors, which are vulnerable to weak global economic conditions. Poor global demand for electronics led manufacturing to contract 0.8% y-o-y, compared to an expected 0.7% growth and a 4.6% growth in the previous quarter. On a quarterly basis, manufacturing output declined 9.6%.
Construction activity was strong and the sector showed a 7.7% growth from the year before. But a decline in private sector building activities meant a 17.2% q-o-q contraction. The finance and insurance also came under pressure, contracting 2.7% from the same period the year before, and compared to a 0.3% y-o-y growth in the previous quarter.
But the services sector, impacted by weak global trade and pressures on the global financial system, has now fallen into a technical recession, economists note. Overall service output shrank on a quarterly basis for the third quarter. Compared to last year, the sector grew just 0.3%, instead of the advance estimate of 1.1%.
The Singapore government is now estimating an overall GDP growth of just 1.5% for 2012, which is at the lower end of the 1.5–2.5% range put out earlier. For 2013, the government expects growth at between 1% and 3%.
Nevertheless, better times are ahead, economists say. “Growth is likely to remain moderate in coming quarters, but will recover gradually in 2013 supported by the recovery in China and as the global trade cycle eventually improves,” says HSBC’s chief economist for India and ASEAN, Leif Eskesen. “Projects in the pipeline for transport engineering and the construction sector could also provide some support.”
Eskesen says it is domestic demand, albeit mostly private consumption or consumer spending supported by still-favourable market conditions, that will help cushion the slowdown. Having said that however, the relatively soft retail sales numbers released a day earlier on Nov 15 indicate that consumers are still wary about parting with hard-earned cash amidst all the uncertainty. Indeed, “a decline in real wage growth is also contributing to slower consumption growth,” Eskesen adds.
According to the Department of Statistics, retail sales grew slower in Sept than in August, as people bought less big-ticket items such as cars, watches and jewellery. Sales grew 2.5% from the year before, below forecasts, and compared to a 3.3% y-o-y growth in August which had beaten analyst expectations. Excluding motor vehicles, retail sales grew 3.9% y-o-y.
The strongest performers in the sector were supermarkets, as well as mobile phones and computers, no doubt given a boost by the recent launch of new gadgets. Supermarkets saw sales grow 13.8% from the year before, while sales in telecommunications goods and computers jumped 15.8%.
Lim Siyi, an analyst at OCBC, argues that the retail environment is actually improving. “Retail sales appear to be recovering gradually from a steep decline back in May. We could see a stronger showing as we enter the seasonally stronger 4Q2012. Retail sales in segments such as department stores, apparel and footwear could experience decent growth the close out the year,” Lim writes in a Nov 16 report.
Given the optimism, OCBC is recommending defensive plays with high dividend yields, such as supermarket operator Sheng Shiong Group, with a 5.7% yield, as well as stocks with diversified geographical revenue streams such as instant coffee maker Viz Branz. Lim has “buy” recommendations on both stocks, but calls for a “sell” on BreadTalk Group, as a stock “with high F&B exposure, [with] food court and restaurant operations.”
No comments:
Post a Comment