The reading was far stronger than the government's advance estimate last month of 0.4 percent growth and well above the highest estimate in a Reuters economist poll. Analysts had expected the final reading to pick up only slightly to 0.5 percent. "For the second half of this year, we should see services momentum improving in line with the greater confidence about global growth prospects and domestic sentiments," said Selena Ling, head of research and strategy for OCBC Bank.
Singapore and other Asian economies which are highly dependent on trade have gained a big boost this year from an improvement in global demand, particularly for electronics products and components such as semiconductors. But exports and their resulting boost to manufacturing had been the main bright spot for Singapore, while services, which accounts for roughly 70 percent of the economy, had lagged.
The latest GDP data suggested the economy was better balanced than first thought, with strength seen in other sectors which had been considered sluggish. Services producing industries grew 3.3 percent from the previous quarter, after shrinking 3.0 percent in January-March.
Within the services sector, wholesale and retail trade grew 6.2 percent, while finance and insurance expanded 3.9 percent. "The key change at the margin is that some of the domestic oriented components are doing better," said Michael Wan, an economist at Credit Suisse.
While exports may cool in the second half, given the possibility of a slowdown in China's economic growth, Singapore's economy should draw more support from private consumption, Wan added. Full-year growth should come in at around 2.5 percent, the Ministry of Trade and Industry (MTI) said in a statement. It revised its official 2017 forecast to a range of 2.0 to 3.0 percent from 1.0 to 3.0 percent previously.
Still, given lingering external risks such as a possible flare-up in trade protectionism, Singapore's central bank is seen as being in no hurry to tighten its exchange-rate based monetary policy. This is all the more so since the domestic labour market remains sluggish.
Moreover, there is little sign of a pick-up in demand-led inflationary pressures despite stronger economic growth, a situation that is vexing central bankers around the world. Most economists expect the Monetary Authority of Singapore (MAS) to keep its policy settings unchanged at its next policy decision due in October.
Copyright Reuters, 2017