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Singapore’s GDP grew 3.6% year over year in the fourth quarter of 2017, below 5.5% growth registered in the previous quarter. The latest revised figure however surpassed the initial reading of 3.1% issued by the Ministry of Trade and Industry (MTI).

Singapore’s economy grew 2.1% sequentially, above a Bloomberg survey forecast of 2% but  lower than the initial estimate of 2.8%. Moreover, the South East Asian nation grew 3.6% in 2017 compared with 2.4% in the prior year.

What’s Driving Growth?

Given that Singapore’s economy is largely trade dependent, improvement in manufacturing sector significantly contributed to GDP growth. Moreover, trade and finance are expected to receive a significant boost from global recovery. Global economic activity seems to be picking up as the International Monetary Fund (IMF) estimates 3.9% growth in 2018 and 2019.  

Singapore’s manufacturing data has been strong for 2017, driven by strong expansion in the electronics sector owing to demand for semiconductors. On a year-over-year basis, the manufacturing sector grew 10.1% in 2017 compared with 3.7% in the prior year. However, Q4 manufacturing data showed clear signs of slowing down, as it expanded 4.8% year over year compared with 19.1% in the prior quarter.

Accounting for around two-thirds of the Singapore economy, the services sector grew 2.8% in 2017 compared with 1.4% in the prior year. However, the construction sector slowed down on a decline in private residential and industrial work. It contracted 8.4% in 2017 against 1.9% growth in the prior year.

Monetary Policy and Wall Street Impact

Although the global exports boom has benefited the city state, rising protectionism across the world might weigh on the trade outlook. Moreover, faster-than-expected rate increases by the Federal Reserve might prompt the Monetary Authority of Singapore (MAS) to change monetary policy.

The MAS decides on the monetary policy by managing the trade-weighted exchange rate index. It is the only country in the developed world that does not rely on short-term interest rate changes to conduct monetary policy changes.

Having eased three times since January 2015, the MAS adopted a neutral stance on the monetary policy in its last meeting in October. Jacqueline Loh, deputy managing director of the MAS stated that inflation forecasts have not changed since the last MAS meeting and the stance on monetary policy remains same.

We will now discuss a few ETFs providing exposure to Singapore (see all the Asia Pacific ETFs here).