Published January 03, 2013

Q4 GDP up 1.8%, keeping technical recession at bay

Growth seen staying muted due to both external, domestic factors

By anna teo

[SINGAPORE] The much- touted technical recession did not materialise after all, even though fears of one continue to linger.

Defying expectations, flash estimates show that the economy grew 1.8 per cent in the fourth quarter of 2012 from the previous quarter, in seasonally adjusted, annualised terms.

This means that Singapore has again dodged recession - which would have ensued with a negative Q4, following a revised, sharper 6.3 per cent contraction in Q3.

Economists had widely expected two straight quarters of GDP contraction after a raft of poor data in the second half of last year, and with official word in the Prime Minister's New Year message this week that the economy grew 1.2 per cent last year, just shy of the 1.5 per cent estimated earlier.

Indeed, talk of a technical recession has been rife for some 18 months now, with one seen as a "foregone conclusion" in Q3 last year but eventually averted in the final revised figures.

Yesterday's economic report card also saw downward revisions in the growth figures for the first three quarters of 2012 - markedly in some cases - throwing forecasters off track in their Q4 guesstimates.

And with Q4 advance estimates based largely on October and November data, the final figures due out next month may yet see a recession, economists from CIMB-GK Research and United Overseas Bank reckon. Or not - since the revisions can go either way, says another economist.

In any case, the GDP figures spell weakness. Compared with a year earlier, the economy grew 1.1 per cent in Q4, after flat growth in Q3 (revised down from 0.3 per cent).

The manufacturing sector, in particular, is well and truly in recession, with two consecutive quarters of year-on-year contraction and nine straight months of negative numbers in sequential terms.

A decline in private-sector building activities kept the construction sector in the red, in sequential terms, for a second quarter. Only the services sector bucked the trend in Q4, thanks to a rebound in the wholesale and retail trade, finance and insurance segments.

GDP growth is expected to remain tepid in coming quarters, given that the global outlook is far from clear and given the domestic cost pressures from a tight labour market, an appreciating Sing dollar and rising industrial property prices.

But the market consensus on GDP growth this year is, for now, nearer the upper end of the government's 1-3 per cent forecast. "We believe a turnaround in manufacturing activity in the second half of this year should provide a boost to overall growth," said UOB's economic-treasury research team.

Citigroup economist Kit Wei Zheng is not as sanguine. "Even in the event of a stronger manufacturing rebound in Q1 2013 from depressed levels, until external uncertainties subside, sustainability of any rebound would remain questionable, with GDP growth profiles likely to remain choppy at best."

Restructuring policies, especially foreign worker measures, will continue to "restrain potential growth", noted Bank of America Merrill Lynch economist Chua Hak Bin. Moves to curb labour inflows will probably cut GDP growth by 1.5-2 percentage points in 2012, he estimates.

Credit Suisse economists also expect less productive firms to "start to get weeded out in 2013 as restructuring bites". Employment growth - which had stayed strong amid the economic slowdown in 2012 - will also begin to ease, they say.

Despite the muted growth outlook, most economists say that global food prices and other inflationary pressures are likely to maintain the headline consumer price rise index in the 3-4 per cent range, which is likely to keep the monetary policy stance unchanged at the next review in April.