Singapore: A good start to the economy in 2Q16 – ING

Prakash Sakpal, Economist at ING, suggests that in the absence of an adverse manufacturing shock we consider the MAS easing cycle is over.

Key Quotes

“A large bounce in April industrial production by 4.8% MoM SA was consistent with 5.4% bounce in the constant price NODX in the last month (consensus +1.6%), data showed today. Steady sequential growth in the pharmaceuticals and semiconductor output supported the headline IP growth. However, against 39.5% MoM NSA bounce in the pharma exports in April the 2.9% growth in pharma IP was small.

Year-over-year IP growth accelerated to 2.9% in April from 0.1% in March and was the fastest since mid-2014. The 0.2% YoY YTD growth is a step up from -5.9% in Aug-Dec 2015. The 2H14 global commodity price crash hit Singapore manufacturers earlier than their north Asian neighbours; the -4.6% YoY Jan-Jul 2015 was a significant step down from +2.7% in 2014. The low base effect explains early recovery than others. Manufacturing was in recession in all of 2015. A 23.6% QoQ annualized manufacturing bounce in 1Q16 ended the recession, thanks to surge in pharma output. However, the performance of the rest of manufacturing and the trade-related services sectors continues to be held down by sluggish external conditions.

The MAS’s surprise shift to a zero-percent S$-NEER appreciation path in April, which is something usually associated with a recession, reflects its assessment of persistent weak activity. But absent an adverse shock we consider the MAS easing cycle over. Our yearend 10-year SGS yield forecast is 1.95% (latest 2.12%, Bloomberg median 2.53%) and yearend USDSGD forecast is 1.35 (latest 1.38, Bloomberg median 1.40, forward 1.38).”