Final 1Q Growth Raised for All Sectors
Final 1Q GDP growth (+3.7%) came in higher than advance estimate (+3.4%) and in line with
our expectations, with estimates revised up for manufacturing, services and
construction. GDP expanded by +3.7% in 1Q22 from a year ago (vs. +6.1% in 4Q). On a
quarter-on-quarter seasonally adjusted basis, GDP rose by +0.7% (vs. +2.3% in 4Q). MTI
maintained its 2022 GDP growth forecast range at 3%-5%, but warned that growth will likely
come in at the lower half of the forecast range.
GDP climbed to 5.8% above its pre-pandemic level in 1Q2020 (vs. 5.1% in 4Q), driven by the
manufacturing sector (19.5% above). The services sector is now 4.4% above pre-pandemic
(1Q2020) levels, but construction (-20.5%) remains well below.
Manufacturing Resilient; Sluggish Recovery for Construction
Manufacturing growth was upgraded to +7.1% (vs. advance estimate of +6%), with growth
led by electronics and transport engineering, which offset the decline in biomedical
manufacturing and chemicals. MTI remained upbeat on the electronics cluster, with robust
global demand for semiconductors from the 5G and auto markets, as well as cloud services
and data centres. MTI cautioned that the chemicals cluster may be weighed down by
China’s slowdown, as China is a key market for petroleum and chemicals products from
Singapore.
Construction rose by +2.1% in 4Q (vs. advance estimate of +1.8%) from a year ago, and rose
by +3.2% on a quarter-on-quarter seasonally adjusted basis (vs. -2.1% in 4Q).
Construction remains a laggard, weighed down by labor constraints and supply disruptions.
The easing of border restrictions will help alleviate labour shortages, but the return of
foreign workers may be slow. The improvement in non-resident employment in 1Q was
mainly driven by work permit holders in the construction sector.
Services: Consumer-Facing Sectors Improving
Services growth was upgraded to +4.2% in 1Q22 (vs. advance estimate of +3.9% and +4.4%
in 4Q), and rose by +1.7% from the previous quarter on a seasonally adjusted basis (vs.
+1.4% in 4Q). Performance was mixed with consumer-facing sectors such as retail trade
(+4.7% vs. +4.3% in 4Q) and food & beverage services (+2.1% vs. -1.5% in 4Q) improving on
easing Covid measures, while external-oriented sectors including wholesale trade (+2.4%
vs. +3.3% in 4Q) and transportation & storage (+5.9% vs. +7.5% in 4Q) moderated due to
softer trade volumes. The accommodation sector fell by -13.5% (vs. -5.1% in 4Q), as the
decline in government demand for quarantine facilities more than offset the increase in
visitor arrivals.
Business services including professional services (+8.1% vs. +4.9% in 4Q), real estate (+8.5%
vs. +1.6% in 4Q), and admin & support services (+4.6% vs. +2.5% in 4Q) saw a boost from
the economic reopening. Finance & insurance (+4% vs. +5.6% in 4Q) eased due to the decline
in the banks segment as both credit intermediation and net fees & commissions
fell. Infocomm (+8.2% vs. +11.2% in 4Q) growth decelerated after 3 straight quarters of
double-digit growth.
Maintain 2022 GDP Forecast at +2.8%, Global Headwinds to Douse Reopening Tailwind
We maintain our 2022 GDP growth forecast at +2.8%, below the lower bound of MTI’s
GDP forecast range of 3%-5%. We think global headwinds will overwhelm and dampen the
reopening tailwind. The Russia-Ukraine war, China’s rolling lockdowns, and global monetary
tightening will likely douse the recovery and undercut growth by the second half of the year
(see ASEAN Economics – Cross Currents: Reopening Tailwind vs. Global Headwinds, 6 May
2022).
Higher inflation and interest rate increases may also squeeze consumer wallets and
curtail spending. A stronger currency will hurt export competitiveness. Manufacturing will
likely ease to a low single-digit pace in the remaining quarters, as chip production is operating
near full capacity and on high base effects. Non-chip sectors will likely feel the brunt of the
global slowdown.
Laggard sectors like construction, aviation and hospitality sectors will improve with the
easing of restrictions and reopening of borders. But the weight of these sectors are not as
large as the manufacturing, and trade-related and interest rate-sensitive sectors. Open
borders and a stronger currency could also see Singaporeans spending more abroad and less
at home.
Enterprise Singapore raised its 2022 NODX growth forecast to 3%-5% (from previous 0%-2%),
given the better than expected performance in the first 4 months of 2022 (+10.1%) driven by
higher prices, and robust global chip demand which is expected to be sustained. We
maintain our 2022 NODX growth forecast at 4%-6%.
We are expecting the MAS to maintain the current tighter stance and steeper slope at the
October meeting following the “double” tightening move in April, unless inflation surprises
on the upside. There is a risk that the MAS have to tighten further via a steeper appreciation
bias, if inflation breaches and persists above the upper bound of the MAS forecast range in
the lead-up to the October meeting. The S$NEER still has room to strengthen within the band
and is currently trading at +1.2% above the mid-point, by our estimates.