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What’s Happening with Singapore’s Economy?

Even though Singapore’s a small nation with ‘only’ 5.4 million residents, there’re still innumerable moving cogs in the economic machinery here. In light of that, here’re some interesting local developments that investors can take note of. This week’s edition brings us to Singapore’s first quarterly economic report for the year 2014 and how the macro-economic situation will unfold in the later 3 quarters.

Singapore’s first quarterly economic report for 2014

According to the Ministry of Trade And Industry Singapore, our country’s economy grew 5.1% (when measured by our Gross Domestic Product) in the first quarter of 2014 as compared to a year ago largely on the back of increased manufacturing activity. But despite a strong report card in the first three months of the year, economic growth is likely to moderate in the later parts of 2014 with a projected increase of 2% to 4% collectively for the year.

For more granular detail, the manufacturing sector’s GDP grew 8% year-on-year in the first quarter of 2014 as compared to a 7% growth rate in the last quarter of 2013. The faster pace of growth owed itself to a “sharp rebound in biomedical manufacturing output and stronger growth in chemicals output”. An example of a biomedical-related manufacturing company could be Biosensors International Group (SGX: B20), which supplies innovative medical devices used in interventional cardiology and critical care procedures.

Meanwhile, year-on-year growth in the services industry has slowed down from 5.9% in the last quarter of 2013 to 4.7% currently. The services sector’s slowdown has been attributed to a manpower crunch due to the consequences of tougher labour laws in relation to foreign workers.

In another report from the Department of Statistics, Singapore’s retail sales dropped a sharp 9.5% in February on a year-on-year basis. When compared with the previous month (January 2014), the Food & Beverages (F&B) sector also fared negatively, declining 11.1%. Further tightening of foreign worker inflows in Singapore may continue to impact companies in the services or retail sectors such as Japan Food Holdings (SGX: 5OI) and Eu Yan Sang (SGX: E02).

With respect to the inflation rate, the Monetary Authority of Singapore (MAS) also highlighted that inflation will pick up as manufacturers continue to pass on accumulated increases in costs to consumers; however they expect inflation to simmer down in the second half of the year.

In any case, MAS also added that the overall outlook for the global economy has brightened with support from two strong pillars: 1) the expected continuation of a recovery in the US labour market which lends support to consumer spending; and 2) a forecast for the Eurozone to finally emerge from two consecutive years of economic contraction.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.