Singapore's economic growth forecast for 2013 raised to 3.8%

Here's why an upward revision is on the cards.

According to DBS, Singapore's GDP growth forecasts for 2013 and 2014 have been raised to 3.8% and 4.0% respectively, up from 2.9% and 3.5% previously. Better than expected third quarter growth compounded by the significant revision in the first half GDP numbers make for this upward adjustment.

Here's more from DBS:

Third quarter GDP growth was initially projected to register -1.0% QoQ saar (5.1% YoY).

But an upward revision is on the cards due a surprise spike in the electronics industrial output in September. Indeed, growth in the manufacturing sector will likely register 5.5% YoY instead of the advance estimate of 4.5%.

Barring any significant revision to the growth figures for the construction and the services sectors, the better manufacturing growth will imply a 0.28%-pt increase in the headline GDP growth number and a likely upward revision in the 3Q13 GDP figures

Moreover, growth in both the services and the construction sectors are expected to come in slightly stronger than what the advance estimates had predicted.

Henceforth, we now expect the third quarter GDP growth to register 5.5% YoY, from the advance estimate of 5.1%. This also implies a sequential growth of 0.3% QoQ saar, instead of a contraction of 1.0%.

In addition, GDP growth figures for the first two quarters of the year have been revised upward. Arithmetically, this has lifted the growth trajectory for the entire year. Assuming moderate growth in the third and fourth quarter, full year GDP is now expected to expand 3.8%.

In fact, we can expect the official GDP growth forecast to be raised to 3.5-4.0% in November, from the existing 2.5-3.5%. The reason is simple. Even if the economy remains stagnant in the third and fourth quarter, that is, zero growth on the margin, full year growth will still be able to clock 3.6%.

Moreover, chance of a sharp sequential pullback in 4Q13 appears low at this juncture given the outlook in the global environment.

Growth momentum in the G3 economies is improving while China’s growth is also picking up. We expect such growth momentum to persist into 2014. These factors will keep Singapore’s GDP growth at a healthy pace in the coming quarters.

Sequential growth is likely to average a healthy 4.2% QoQ saar per quarter, which will then bring 2014 GDP growth to 4.0%, up from 3.5% previously. In short, growth will be back to potential in 2014.