Singapore Q1 GDP to grow 1.8%, MAS likely to ease policy: 938LIVE poll

The Republic's economic growth probably moderated in the first quarter and the central bank looks set to ease monetary policy this week, according to 938LIVE's poll of 14 economists.

Economists surveyed forecast first quarter Gross Domestic Product (GDP) to grow by a median 1.8 per cent year-on-year, slower than the 2.1 per cent expansion in the previous quarter. On a quarter-on-quarter seasonally adjusted annualised basis, growth is projected at 0.2 per for the period ended March – below the 4.9 per cent seen in the fourth quarter of 2014.

The expected moderation was largely blamed on poor performance by the manufacturing sector. DBS economist Irvin Seah noted that there were “four consecutive months of below 50 readings in the Purchasing Managers’ Index” and an “equally dismal industrial production output growth of -1.2 per cent year-on-year on average between January-February.”

He pronounced the outlook for the sector as “bleak.”

Outside of manufacturing, Chua Hak Bin, economist at Bank of America Merrill Lynch in Singapore, said he expected “construction growth to continue tapering off in 1Q on continued contraction in private sector works.”

Looking ahead however, Standard Chartered economist Jeff Ng predicted a change in the growth story. “We are looking for external demand to be driven by the US and Europe, so having these two major economies start to pick-up their domestic growth engine, would imply more domestic demand on Singapore.” But he said the pick-up is “more likely a second half story than a first half story.”

The Singapore government has an official forecast of 2 to 4 per cent GDP expansion for the full year.

Meanwhile, eight out of 14 economists polled expect the Monetary Authority of Singapore (MAS) to announce an easing when they issue their monetary policy statement on Tuesday morning (Apr 14). The central bank manages monetary policy by letting the Singapore dollar rise or fall against a basket of major currencies within an undisclosed trading band – this is called the Singapore dollar nominal effective exchange rate (S$NEER).

Explaining why he thought MAS would continue an easing policy, Arjen van Dijkhuizen, an economist at ABN AMRO, said: “Falling energy (and other commodities) and faltering domestic demand have pushed down inflation to negative territory.” Policy easing is normally done to broadly weaken the Singapore dollar which makes local exports cheaper and eventually give the economy a leg-up.

However, another likely scenario – according to three of the economists surveyed – could be the central bank choosing to widen the trading band. Senior economist at Mizuho Bank, Vishnu Varathan, said “band widening is neutral, not dovish in intent” but it could also have “the immediate effect of mild easing.”

The remaining three economists polled forecast no changes to the slope, band and midpoint of the S$NEER, after the MAS unexpectedly eased policy in January and blamed a plunge in commodity prices for overall deflationary pressures.

Both the GDP data and the monetary policy statement will be released on Tuesday morning.