Yesterday night Singapore released its advance estimate for 2Q14 real GDP. That data showed the ever-volatile Singaporean economy more than cut in half from a rate of change perspective:
- Real GDP YoY:+2.1% from +4.7% prior vs. a Bloomberg consensus estimate of +3.1%
- Manufacturing: +0.2% from +9.9% prior
- Construction: +5% from +6.4% prior
- Services: +2.8% from +3.9% prior
- Real GDP QoQ SAAR:-0.8% from +1.6% prior vs. a Bloomberg consensus estimate of +2.4%
- Manufacturing: -19.4% from +12.2% prior
- Construction: +2.6% from -0.5% prior
- Services: +5.2% from -1.4% prior
Two things stand out most to us:
- Consensus being way off on their estimates
- The disaster that is manufacturing growth in Singapore
While both inputs can be readily dismissed by a Consensus Macro growth bull (#1 because Singaporean growth is volatile and therefore difficult to forecast and #2 because of the small size of the Singaporean economy ($296B), a handful of large multinational corporations can have an outsized impact on Singaporean production), we would be remiss to do anything but interpret them at face value.
Why? Because Singapore is the arguably world’s most open economy from an international trade perspective. Specifically:
- Singapore is home to the world’s second-most trafficked container port behind Shanghai, handling some 31,650 TEUs on an annual basis, per the most recently available data (2012);
- An export/GDP ratio of 191% makes Singapore the second-most export-reliant growth model in the world after Hong Kong; and
- Singapore’s primary export destinations are very balanced from a market share perspective: Malaysia (12.3%), Hong Kong (10.9%), China (10.8%), Indonesia (10.6%), US (5.5%), Japan (4.6%), Australia (4.2%), and South Korea (4%) round out the top eight. This is in stark contrast to the concentration seen in Hong Kong exports, where China accounts for 57.7% of the total.
It’s should then come as no surprise that the slope of Singaporean growth tracks the slope of global growth quite well (i.e. these two time series exhibit a high degree of cointegration). At worst, Singapore’s high-frequency growth data should be viewed as a real-time read on the marginal state of the global economy.
As such, with Singaporean economic growth moderating so sharply in 2Q14, it’s reasonable to assume that global growth indicators will start to mean revert lower from what are incredibly stretched levels on a historical basis.
Quickly delving back into Singapore, we see that the forward-looking components to the SIPMM PMI survey are all decelerating on a trend basis, while inventories, imports and supplier delivery times (i.e. anything that might indicate the need to accelerate or decelerate production) is accelerating on a trend basis. In the context of crashing export growth, these signals do not bode well for the Singaporean economy’s ability to ‘comp’ difficult compares in 2H14.
If we knew nothing else about Singapore, we’d short it on those factors alone. Layer on an outlook for continued tight monetary policy (i.e. export growth-eroding SGD strength) amid a dramatic acceleration in inflation and a now-contracting, formerly-bubbly property market, and we are left with a tasty cocktail on the short side of Asian equities for 2H14.
Global growth bears: prepare to drop the anchor!
Associate: Macro Team