A whiff of growth after four quarters of contraction

Q2 flash estimates today may finally buck the trend in on-quarter terms

After months in the red, economies across Asia are expected to report positive GDP numbers for the April-June quarter, starting with Singapore today.

Singapore’s Ministry of Trade and Industry is due to release early this morning flash estimates of the economy’s Q2 gross domestic product (GDP) growth, which economists widely expect to be not just positive but in double digits. But only in the seasonally adjusted, annualised on-quarter terms, which have so far seen four negative quarters since Q2 2008.

The year-on-year (y-o-y) pace will probably still, for the third straight quarter, spell contraction.

The advance estimates to be unveiled this morning are based on only two months’ data, not the full quarter. But seemingly strong April and May industrial output figures have spurred economists to put out fairly bullish Q2 forecasts in recent weeks, even revise up their full-year projections in some cases.

Apart from a lone negative forecast from Standard Chartered Bank, most of the Q2 quarter-on-quarter (q-o-q) estimates are in the double-digit teens, with Citigroup’s near-23 per cent pace about the most upbeat – until Daiwa Institute of Research’s forecasts came along over the weekend.

Daiwa’s Asia chief economist P K Basu’s ‘conservative’ Q2 estimate is 35 per cent q-o-q (adjusted) growth, which translates to minus 1.5 per cent y-o-y.

‘In fact, even minus 1.5 per cent maybe a little bit too low, because financial services and business services would both have grown at a fairly decent clip, construction would have grown a little over 10 per cent, and manufacturing actually grew in the first two months of the year,’ he told BT.

‘So I find it pretty difficult to see real GDP contracting at all in Q2. But, conservatively, I’d say minus 1.5 per cent because otherwise, the q-o-q would be something quite spectacular.’

Stock-market turnover rose 2.3 per cent y-o-y in Q2 after sharp declines in the previous two quarters, and bank credit continued to grow, he noted. And business services would also have been buoyed by the turnaround in real estate. Plus, a ‘better’ set of June manufacturing data would mean a GDP surge of 40 per cent q-o-q, he added.

‘Our top-of-the-street forecast for 2009 real GDP may need to be raised further!’ he said. Months ago, Mr Basu already forecast minus 3.3 per cent for 2009 GDP – against official projections of 6 to 9 per cent contraction – though Citigroup has recently upped its forecast to minus 2.7 per cent.

Macquarie Securities economist Rajeev Malik also just raised his full-year forecast by one point to minus 5 per cent. He sees the economy rebounding by 16.5 per cent in adjusted q-o-q terms in Q2, or minus 5 per cent y-o-y.

‘On our revised trajectory, y-o-y GDP growth will continue to improve, and is expected to return to the black in Q4 2009,’ says Mr Malik.

Also highly bullish – not just about Singapore but the region, particularly China – is DBS Bank’s David Carbon, who wrote in a report published yesterday: ‘It’s payback time. The V-shaped recovery in industrial production and exports in Asia over the past few months will show up in double-digit GDP growth in most of Asia in Q2 2009, starting this week with China and Singapore.’

He expects Singapore to report sequential GDP growth of 15-16 per cent for Q2, and China, 16-17 per cent. South Korea, Taiwan and Thailand are expected to follow in the weeks ahead.

But Stanchart, which is sticking to its off-trend bearish forecast for Q2, notes that both external and domestic demand remain weak.

‘We expect the services sector to be the main drag on economic growth in Q2 2009 while construction growth should slow in Q2 . . . the surprise on the upside could come from manufacturing,’ the bank said in a recent report.

In any case, it remains to be seen if an end to negative q-o-q numbers translates eventually to full economic recovery.

Source : Business Times – 14 Jul 2009

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