Manufacturing boosts growth to fastest in 3 years

Full-year economic growth tipped to be 2.5% even as economists remain cautious on longer-term outlook

The Singapore economy likely grew at its fastest pace in three years over the July to September quarter, buoyed by the surging manufacturing sector.

But economists are cautious about the longer-term outlook, noting that electronics manufacturing - the brightest spot in the economy this year - might yet lose steam as export demand tapers off.

In addition, growth has largely been coming from trade-dependent sectors, with local demand yet to pick up decisively.

Their comments come ahead of advance economic growth estimates for the third quarter due out later this week from the Trade and Industry Ministry (MTI).

Official forecasts tip full-year economic growth of around 2.5 per cent, up from last year's 2 per cent.

Private-sector economist estimates for third-quarter economic growth range from 3.5 per cent to slightly above 5 per cent year-on-year.

Private-sector economist estimates for third-quarter economic growth range from 3.5 per cent to slightly above 5 per cent year-on-year.

This is well up from a 2.9 per cent expansion in the preceding three months and would also be the fastest quarterly expansion since 2014.

This is thanks largely to the manufacturing sector, which makes up a fifth of the economy and is being lifted by strong global demand for semiconductors and related equipment.

Factory output soared 11.2 per cent in the first eight months of the year - the highest since April 2011 and well above the 3.6 per cent for the whole of last year.

This has helped lift overall growth, with the effects gradually being felt in other segments of the economy such as trade-related services.

"Services growth likely picked up further with the recovery broadening, particularly to financial, business, and wholesale and retail trade," said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye, who expect third-quarter growth of close to 4 per cent year-on-year.

The MTI is likely to upgrade its forecast for full-year economic growth next month when more data becomes available, they added.

Other economists agreed that the outlook is slightly cheerier but warned that the recovery is still nascent and has been concentrated in a few sectors.

Bank of America Merrill Lynch economist Mohamed Faiz Nagutha noted that while economic growth has outperformed expectations so far this year, "the recovery remains patchy and lacking momentum".

"While global electronics demand is expected to remain firm, the rapid inventory accumulation is likely to take a pause after the launch of new smartphone models in the second half of the year," he added.

This means growth could slow down next year as manufacturing returns to more sustainable growth rates.

Mr Faiz expects third-quarter economic growth to come in at 3.5 per cent.

UOB economist Francis Tan said growth has been patchy even within the manufacturing sector, with the semiconductors and precision engineering clusters doing most of the heavy lifting, while other segments, such as offshore and marine, remain weak.