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    Apr 15, 2015

    Tepid Q1 growth amid manufacturing woes

    ECONOMIC growth in the first three months of the year remained tepid as the slow global recovery continued to weigh on the trade-dependent manufacturing sector.

    The latest data came yesterday alongside an announcement from the central bank, which ended weeks of speculation by saying it will maintain its stance of a modest and gradual appreciation of the Singdollar.

    The Singapore economy grew 2.1 per cent year on year in the first quarter, supported largely by the services and construction sectors, according to advance estimates from the Ministry of Trade and Industry yesterday.

    This was slightly better than the 1.7 per cent expansion that economists had expected. However, the economy grew just 1.1 per cent compared with the previous quarter, well below the 4.9 per cent quarter-on-quarter growth posted in the last three months of last year.

    The manufacturing sector, which makes up a fifth of the economy, was the main drag on growth in the January to March period as the electronics, precision engineering and transport engineering clusters remained weak.

    The sector contracted 3.4 per cent over last year, following a 1.3 per cent decline in the last three months of last year.

    DBS economist Irvin Seah said manufacturing was the "weakest link" and the outlook for the industry remains lacklustre.

    Exports to Singapore's top three markets - the United States, the euro zone and China - appear to have bottomed out, but signs of a decisive pick-up in growth remain elusive, he added.

    OCBC economist Selena Ling said that the construction industry - which grew 3.3 per cent in the first quarter over last year, due to a burst of private residential building activity - was a bright spot.

    "This was slightly surprising, given that private residential market sentiments remained tepid," she added.

    Meanwhile, the Monetary Authority of Singapore (MAS) said its latest policy announcement comes amid moderate economic growth, "with an uplift from the continued recovery in external demand tempered by domestic supply-side constraints".

    The "sustained albeit uneven" global recovery is expected to provide a mild lift to externally oriented sectors of Singapore's economy, MAS said.

    An anticipated increase in oil prices in the second half of this year is also expected to support oil-related manufacturing.

    However, global oil prices are still likely to average significantly below the US$93 a barrel recorded last year, which will put a cap on Singapore's rate of inflation.

    Although underlying cost pressures from the tight labour market remain, the pass-through to consumer prices could be limited by moderate economic growth.

    MAS' inflation forecasts remain unchanged from those of its January monetary policy statement. It expects inflation to come in between negative 0.5 per cent and 0.5 per cent this year.

    Singapore's benchmark three-month interest rate eased to a two-week low yesterday after MAS' announcement. The three-month Singapore interbank offered rate, which is used to set floating-rate mortgages, slipped to 1.01441 per cent, its lowest level since March 30.

    The Singdollar also turned sharply higher against the US dollar, rising about 1 per cent to $1.3597 to the greenback by mid-morning yesterday.