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FXstreet.com (Barcelona) - Nomura economists Euben Paracuelles and Lavanya Venkateswaran notes that according to the government's flash estimates, Q4 2012 GDP growth is set to come in at 1.8% q-o-q saar, rebounding from a 6.3% contraction in Q3.

They feel that this should represent a small positive surprise given that expectations of a technical recession have risen following PM Lee´s new year address, in which he mentioned full year 2012 growth slowing to 1.2% from 4.9% in 2011. The pickup in Q4 was led by the services sector rising 7% q-o-q saar, after declining by 3.9% in Q3. The manufacturing sector remains the weak spot, falling for a third consecutive quarter, by 10.8% q-o-q saar. Meanwhile, the construction sector shrank by 8.9% after falling 17.4%, led by weak private sector activity. They write, "this is consistent with our view that a key downside risk is that private investment weakens as business sentiment is affected by external uncertainty and tight domestic policies."

They note that a final reading of full-year 2012 growth of 1.2% would be well below the government's 1.5-2.5% range, raising the question of whether this will prompt a policy response - i.e., policy makers introduce countercyclical and more stimulative measures and/or relax the foreign labour policy (part of the slowdown is attributed to some industries having "difficulty hiring the workers they need to grow"). They finish by writing, "At this point, we believe this unlikely. The official rhetoric has not changed: Prime Minister Lee's address reiterated that growth will remain slow and emphasized the need to address long-term issues, including productivity-led restructuring and population growth. Mr Lee also said that this is a "new phase" in which "we must expect slower growth than we have become accustomed to."

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