Why Singapore should brace itself for a 'slow grind' to recovery

Long-term growth prediction will remain flat.

According to DBS, August industrial output has more or less confirmed a sequential GDP contraction in the third quarter. Headline industrial production index was down by 1.4% MoM sa, the third consecutive month of decline.

On a year-on-year basis, though output was 3.5% YoY higher, it came in below market expectation of a 4.9% expansion.

Here's more from DBS:

Production in the key electronics cluster has been lacklustre. Though the cluster still put up a yearly expansion of 5.3% YoY in output, it’s mainly due to low base effect.

At the level terms, electronics output has been shrinking for three consecutive months and external economic conditions probably do not suggest a strong pickup in the near term except for a likely one-off uptick in Oct-Nov due to the year-end festive season demand.

And the biomedical segment is undergoing a cyclical doldrum. Production level has bottomed in July and remain stagnated in August. Though a rebound can be expected in September due to the volatile nature of this industry, there is a lack of fundamental catalyst for a strong showing.

In short, this set of numbers has confirmed our long held view that the global outlook remains dicey and the growth path ahead is not that rosy. Expectation has run ahead of underlying fundamentals in the developed economies and Asia is grappling with some of its own domestic consolidations.

Ultimately, this will affect the growth outlook of the Singapore economy. While there are nascent signs of recovery, high frequency data such as the NODX and IPI will be constant reminders that it is going to be a slow grind instead. The longer term growth trajectory will remain flat whereas higher frequency data will be running sideways.