2Q 2013 real GDP surged QoQ and YoY. Singapore’s advance estimate for 2Q 2013 real GDP showed the economy expanded by +15.2% ann. QoQ (1Q 2013: +1.8% ann. QoQ) and +3.7% YoY (1Q 2013: +0.2% YoY).

Manufacturing rebounded amid further expansions in services and construction. Manufacturing underpinned the better topline quarterly growth as it rebounded by +36.7% ann. QoQ (1Q 2013: -12.7% ann. QoQ) and rebounded by +1.1% YoY (1Q 2013: -6.9% YoY) on the surge in biomedical manufacturing (Apr-May 2013: +32.4% YoY; 1Q 2013: -6.7% YoY) and recovery in electronics industry (Apr-May 2013: +2.9% YoY; 1Q 2013: -9.8% YoY). This is on top of the continued growth in services (2Q 2013: +9.0% ann. QoQ; +5.0% YoY vs 1Q 2013: +8.1% ann. QoQ; +2.7% YoY) and construction (2Q 2013: +9.0% ann. QoQ; +5.6% YoY vs 1Q 2013: +14.3% ann. QoQ; +6.8% YoY).

Maintain our 2013 real GDP growth forecast. The advanced estimate for 2Q 2013 implies a +2.0% YoY growth in 1H 2013. We maintain our full-year real GDP growth projection of +2.3% (2012: +1.3%). The official real GDP growth forecast for 2013 remains at +1% to +3%.

As growth is sensitive to external conditions, domestic policies and one-0ff factors. Despite the significant growth improvement in 2Q 2013 from 1Q 2013, our full-year forecast factored in the sensitivity of Singapore’s economy to the combination of external conditions, domestic policies and one-off factors:

• External conditions could exert a material influence on manufacturing given that its rebound in 2Q 2013 was narrowlybased i.e. largely driven by the volatile biomedical industry amid a modest growth in electronics and contractions in other key segments like chemicals, transport engineering and precision engineering. Global economy is still struggling to find a firm footing on growth amid below-trend US growth, recession in Eurozone as well as slowdowns in China and other large emerging economies. This has prompted the IMF to trim its growth forecasts for both 2013 world real GDP and trade volume to +3.1% from +3.3% and +3.6% respectively.

• Domestic policies will also affect growth trajectory in the subsequent quarters of the year. In particular, further measures to curb property speculation at the start of the year and the recent prudential banking policy on total debt service ratio are expected to especially impact the construction sector.

• A one-off factor boosted 2Q 2013 services growth, namely the purchase of used cars that lifted retail sales when in early Apr 2013, MAS temporarily lifted the auto financing restrictions announced in Feb 2013 for a period of 60-days. This could lead to some tapering in the sector’s growth in 2H 2013 as the one-off effect fades.

Source: Maybank Kim Eng Research - 15 Jul 2013