Property, Financial Boom Drives Growth In Services

Source : The Straits Times, 28 Aug 2007

SINGAPORE’S services sector racked up a robust second quarter, thanks to the booming property and financial sectors.

Overall business receipts for the three months ended June 30 were up 15.6 per cent over the same period last year, according to the Department of Statistics.

Financial services, real estate and business services were among the sectors that enjoyed bumper growth but economists were not optimistic that such robust expansion will be sustainable.

Fortis Bank strategist Joseph Tan said: ‘The main question is how the sub-prime activity in the United States will affect the market. If it is risk-averse, we will be negatively affected if trading volume falls.’

Financial services led the way with a 35.6 per cent rise in turnover, thanks mainly to brisk business in banks, stock brokers, funds managers and investment advisors.

The related field of insurance rose 28.2 per cent. If the financial and insurance sector figures were stripped out of the overall picture, services industry growth in Singapore was still 10.5 per cent.

United Overseas Bank economist Alvin Liew believes, however, that those two sectors are still key to further strong expansion. ‘Growth without financial services remains rather strong, but because financial services registered strong growth, if it slows, the overall robust growth seen here might not be sustainable.’

Real estate, excluding developers, grew by 27.2 per cent, which, in turn, came on the back of robust 19.2 per cent first-quarter growth.

The bumper figures stemmed from the dramatic recovery in the housing market but experts are divided over whether the good times will roll for much longer.

Mr Liew feels real estate ‘can be expected to do well over the next 12 to 18 months’, while Mr Tan believes demand could dry up.

‘A lot of the positive vibes in the property markets have been driven by gains in the equity markets,’ he said.

‘If activity in the markets slow down, real estate activity could slow down too.

‘But there are two trends in the sector. Fundamental demographic demand, such as with the integrated resorts and inflow of migrants, will continue to drive demand over time. But cyclically, we can expect retardation of demand as speculative buying and positive sentiments slow.’

Leasing services, a related field, also enjoyed a good quarter, with receipts up 12.7 per cent, thanks mainly to more business for firms leasing land and water transport gear.

Education services were up 15.9 per cent while business services rose 15.6 per cent. This sector covers fields such as legal and architecture but it was the 36.8 per cent surge in market research and management consultancy firms that really gave the sector a boost.

Transport saw growth across all sectors reflecting the higher returns from freight as regional trade boomed. Receipts in storage and supporting services rose 12.4 per cent.

Economists expect the services sector to grow fairly strongly for the rest of this year and into 2008.