Q2 surge likely a one-off, say analysts

20.7% GDP growth due to restocking, volatile pharma sector, they say

SINGAPORE'S eye-catching growth figure for the second quarter is likely to be a one-off, economists have warned.

The upbeat gross domestic product figures released yesterday by the Ministry of Trade and Industry (MTI) show that, after shrinking for four consecutive quarters, the economy surged 20.7 per cent between April and June as compared to the first quarter.

But experts say that the surprise GDP hike is largely down to the traditionally volatile pharmaceutical sector and restocking.OCBC economist Selena Ling said: 'The double-digit quarter-on-quarter GDP growth is unlikely to be repeated again, given that global demand recovery - especially from the developed economies - remains fragile.'

MTI Second Permanent Secretary Ravi Menon said: 'It's hard to predict production decisions in pharmaceutical plants or inventory behaviour in electronics, but it's better to assume spikes in the second quarter will not persist - at least to the same degree.'

Economists also note that key indicators such as non-oil domestic exports and industrial production have yet to show signs of a decisive recovery.

The MTI data reveals that goods producing industries grew 0.5 per cent year-on-year after four straight quarters of decline, shooting up 44.2 per cent from the first quarter.

Services declined 4.8 per cent year-on-year, but grew 8.7 per cent quarter-on-quarter.

Singapore manufacturing shot up 49.5 per cent from the first quarter due to a rise in production of pharmaceutical ingredients and inventory restocking in the electronics sector, but shrank 2.4 per cent from the same period last year.

Financial services grew 22.8 per cent compared to the first quarter, while construction surged 32.7 per cent.

However, such upbeat findings should not be taken as the shape of things to come. And, despite the quarterly improvements, the economy shrank 3.5per cent relative to the same period last year.

CIMB-GK economist Song Seng Wun predicted biomedical pulling back after a strong quarter, calculating that the sector accounted for about three percentage points of the year-on-year figure.

So, second-quarter GDP would have contracted 6.5 per cent instead of 3.5 per cent had it not been for the biomedical sector.

DBS economist Irvin Seah noted that although the electronics sector had recovered, the rebound would likely be gradual. 'The sector's grinding slowly northward. We don't expect a significant upward recovery,' he said.

And the corner may not have turned for financial services either.

UOB economist Chow Penn Nee said: 'The sustainability of the stock market rally has been questioned. And a retreat in the stock market in the latter half of this year might drag the financial services segment down.'

MTI added: 'Financial services was boosted by sentiment-sensitive segments such as stock market activities. It is uncertain if these can be sustained into the second half.'

Source: Straits Times, 12 Aug 2009