Decelerating Singapore economy provides little upside potential for stocks

Singapore's Ministry of Trade and Industry has updated its estimate for the economy's third quarter growth to 7.5 percent year-on-year. On an annualised quarter-on-quarter basis, the economy declined 3 percent in the third quarter.

Manufacturing was hard hit, slowing down from 20.7 percent year-on-year growth in the second quarter to 11.5 percent in the third. The other badly-hit sector was construction, which contracted a further 10.9 percent year-on-year in the third quarter after a 5.9 percent contraction the previous quarter.

More recent data show no sign of an acceleration in the economy.

International Enterprise Singapore reported that non-oil domestic exports (NODX) increased by a mild 1.0 percent in October 2004 on a month-on-month seasonally adjusted basis, after a 1.4 percent decline in September 2004. On a year-on-year basis, NODX grew 11.9 percent in October.

Non-oil retained imports of intermediate goods (NORI), a short term leading indicator of overall manufacturing activities in the months ahead, posted a 4.2 per cent rise on a month-on-month seasonally-adjusted basis in October, partially reversing its 7.2 percent decline in September.

With the economy now clearly decelerating, most analysts do not see much upside potential for the Singapore stock market. For example, in a recent report, Macquarie Securities gave a target of 2,100 for the Straits Times Index for the next 12 months. That is not much higher than today's close of 2,032.62.