SINGAPORE, May 26 — Led by a surge in services output, the Republic’s economy grew faster than initially estimated in the first quarter, but falling labour productivity and rising business costs remain key concerns while the external outlook is still clouded with uncertainties.
Gross domestic product expanded 2.6 per cent in the first three months of the year from the corresponding period a year earlier, the Ministry of Trade and Industry (MTI) said today (May 26), picking up pace from the 2.1 per cent growth in the fourth quarter of last year.
The performance was better than the advance estimate of 2.1 per cent growth and also topped the 2.2 per cent forecast by economists.
On a seasonally adjusted annualised basis, the economy expanded by 3.2 per cent, moderating from the 4.9 per cent growth in the preceding quarter.
Despite the first-quarter performance, analysts raised questions over the sustainability of growth over the longer term.
“The most obvious let-down is the negative labour productivity growth … It is not clear when Singapore can have a meaningful increase in labour productivity which is needed for sustainable growth,” said Dr Tan Khay Boon, senior lecturer of SIM Global Education.
Labour productivity fell 0.6 per cent in the first quarter, the fourth straight quarter of decline, the MTI report showed. Meanwhile, overall labour costs surged 5.3 per cent, while the unit business cost of manufacturing increased 0.9 per cent.
“The continued weakness in labour productivity growth pushed labour cost growth higher … The build-up in labour costs will eventually have to be passed on to consumer prices when economic conditions stabilise,” said Nomura analysts Euben Paracuelles and Brian Tan in a research note.
“The accommodation and food services sectors appear to bear the brunt of high costs, but these may spread to the other sectors,” added Dr Tan.
The MTI said the job market is expected to remain tight and labour-intensive sectors such as construction, retail and food services may see growth curbed by manpower constraints.
The services-producing industries grew 3.8 per cent year-on-year in the first quarter, higher than the 3.1 per cent in the previous quarter, with the wholesale trade segment boosted by non-oil re-exports. The finance and insurance sector expanded by 7.9 per cent, as banks enjoyed resilient loans growth and higher net interest margins, but the pace slowed from the heady 10.3 per cent previously.
The construction sector grew 3.1 per cent, accelerating from 0.7 per cent previously, lifted by private sector building projects. The manufacturing sector shrank 2.7 per cent, deepening from the 1.3 per cent contraction previously but improving from the 3.4 per cent decline in the flash estimate.
Separate data published by the Economic Development Board today showed a weak start to the second quarter as manufacturing output slumped 8.7 per cent last month, the largest fall in over two years, owing to a steep drop in the pharmaceutical production.
The MTI also warned of sector-specific risks in the coming months.
“For instance, low oil prices have dampened the outlook of the marine and offshore industry, while tourism-related sectors such as the accommodation and food services sector may face headwinds in the near term due to lacklustre visitor arrivals,” it said.
For the full year, the MTI has maintained its growth forecast of 2 to 4 per cent amid a mixed global outlook.
“The pace of growth is likely to remain uneven across economies,” said the MTI. The United States economy will likely pick up pace this year on stronger domestic demand while the eurozone is expected to improve following the implementation of stimulus measures since March, it said.
However, the MTI warned of the risk of a sharp correction in the real estate market in China, Asia’s largest economy and Singapore’s biggest trade partner. There are also uncertainties over Greece’s future in the eurozone, as well as fears of deflation in the regional bloc. In the US, there are lingering uncertainties over when, and the pace at which, the Federal Reserve will raise its benchmark borrowing rate, it said.
“One concern is the pending interest rate hike in the US, which, while not immediate, is almost certain to occur this year. It will affect both the finance and insurance sector and the construction sector, which provided the bulk of the growth year-on-year for the first quarter,” said Dr Tan. — TODAY
