Advance estimates for Singapore's gross domestic product in the three months to March show the economy contracted by 0.7 percent on the quarter after an increase of just 0.1 percent in the three months to December. Monthly PMI survey data also indicated subdued conditions in the Singapore economy over this period. GDP rose 0.1 percent on the year in the three months to March, also weakening sharply from the 2.1 percent increase recorded in the three months to December.

Weaker headline quarter-over-quarter growth was driven by the manufacturing sector. Manufacturing output fell 5.2 percent on the quarter after a previous increase of 1.0 percent, while service sector output rose 0.3 percent after falling 0.2 percent previously and construction activity expanded 1.8 percent after a previous increase of 1.4 percent.

Today's data showing weaker GDP growth was accompanied by a decision by the Monetary Authority of Singapore to leave policy settings on hold at their semi-annual policy meeting. Advance GDP estimates are mainly computed using data from the first two months of the quarter. Revised GDP estimates for the quarter, incorporating more comprehensive data, are scheduled for publication next month.

GDP refers to the aggregate value of the goods and services produced in the economic territory of Singapore. GDP estimates are compiled by the output, expenditure and income approaches. Output-based GDP refers to the sum of gross value added generated by economic activities in the domestic economy. Expenditure-based GDP refers to the sum of private consumption expenditure of households including non-profit institutions serving households, government consumption expenditure, gross capital formation and net exports of goods and services. Income-based GDP refers to the sum of incomes receivable by each institutional sector from the domestic production of goods and services which includes compensation of employees, gross operating surplus and taxes (less subsidies, if any) on production and on imports.

In order to compare the real value of output/expenditure over time, it is necessary to remove the effect of price changes. This is achieved by selecting the price structure of 2010 as the base according to which the goods and services in other years are re-valued. The resulting aggregates after adjustment for price changes are known as constant-price estimates.
The advance GDP estimates are computed largely from data in the first two months of the quarter (e.g. 1st Quarter is based on Jan and Feb; 2nd Quarter is based on Apr and May). They are intended as early estimates of GDP growth in the quarter, and are subject to revision when more comprehensive data become available.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.