Cooling measures and manpower curbs start to really bite as growth slows in Q3

The construction sector was particularly disappointing.

The pain brought about by economic restructuring became more keenly felt in the third quarter, as the country’s economy clocked in a lower-than-expectations 2.4% year on year growth rate.

According to OCBC, the construction sector posted particularly disappointing results. The construction sector saw a 2.7% quarter on quarter moderation from Q2 amid weaker private sector construction activities, representing the greatest decline since 2Q10.

OCBC states that there may not be light at the end of the tunnel at this juncture for the construction sector given the somewhat dovish signals from the sector, especially from the private sector construction side, coupled with the still tight foreign manpower policy focus on this sector due to its lackluster labour productivity performance.

It is plausible to see the construction sector continue to underperform in 4Q14, with either its 3rd qoq contraction or even a yoy contraction given the high base (+7.3% yoy) in 4Q13. Given that the first three quarters of 2014, the Singapore economy expanded by 3.2% yoy, and with 4Q14 growth tipped at 2.5% yoy, it looks likely that full-year growth may be closer to the 3% handle, rather than the 3.3% yoy that we initially estimated. This would also be in line with the current 2.5-3.5% official growth forecast, which is predicated on the expected cyclical uplift from external demand and countered by the domestic supply-side constraints, namely manpower,” noted OCBC.

Here’s more from OCBC:

In contrast, the services industries saw 3Q growth sustain at 2.9% yoy (+1.3% qoq saar) supported by finance & insurance and business services sectors.

Recent housing indicators suggest a stabilization/mild correction rather than a bear market, but depending on the pace and magnitude of the correction in private residential property prices, a partial unwinding of some cooling measures (eg. ABSD?) cannot be ruled out in 2015-2016.

3Q GDP growth came in at 2.4% yoy (+1.2% qoq saar) in 3Q below our expectations as manufacturing and construction disappointed at 1.4% yoy each.

Note that the 2Q14 GDP growth estimate of 2.4% yoy was unchanged, but the qoq saar estimate was revised down from +0.1% to -0.1%, marking its first qoq saar contraction since 3Q12.

Although the +1.2% qoq saar print for 3Q is just the advance estimates, the likelihood of an outright recession post-revisions still looks small for now, but watch the upcoming Sep NODX and industrial production data due 17 and 24 Oct respectively for a better gauge of where likely manufacturing growth revisions.

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