Singapore economy 'should return to the path of recovery', expected to grow at 'above-trend' pace in 2022: MAS

SINGAPORE: The Singapore economy should return to the path of recovery and is expected to expand at a “slower but still-above trend” pace in 2022, said the Monetary Authority of Singapore (MAS) on Thursday (Oct 28).

The country’s economy is expected to expand by “6 to 7 per cent” in 2021, MAS said in its latest macroeconomic review.

“It should register slower but still-above trend growth in 2022, barring the materialisation of downside risks arising from the evolution of the virus or other global developments,” added the authority.

ECONOMIC OUTPUT BACK TO PRE-PANDEMIC LEVEL

Since the beginning of the year, Singapore’s economic growth has experienced “fits and starts”, as new waves of COVID-19 infections led to several rounds of re-tightening followed by relaxation of movement restrictions, the report said.

Domestic-oriented activity was “curtailed” due to these restrictions, but external-facing trade-related and modern services sectors fared better and provided some support to overall growth, it added.

However, MAS noted the pullback in economic activity over Q2 and Q3 was less severe than during the circuit breaker period in Q2 2020, as this year’s measures were generally less stringent.

Firms adapted “to some extent” by pivoting to alternative means of conducting business, said MAS.

In Q3 2021, overall economic output returned to its pre-pandemic level, although there were still significant disparities in performance across industries. 

"While the trade-related and modern services clusters surpassed their pre-pandemic levels by around 10 per cent and 5 per cent in Q3, the domestic-oriented cluster remained some 10 per cent below its pre-crisis level," MAS stated. 

ECONOMIC OUTLOOK

The economy is expected to continue expanding in the coming quarters as it reopens.

The domestic-oriented sector should see a “gradual pickup in activity”, while prospects for the travel-related sector have also improved slightly, MAS added.

Singapore recently announced the expansion of its vaccinated travel lanes to more countries, including the United Kingdom and the United States.

The report added that recovery of consumer-facing industries, such as food and beverage, retail and land transport, will be held back in early Q4 due to the prevailing high number of COVID-19 cases in the community.

The restrictions meant smaller group sizes for social gatherings and dining-in.

“Nevertheless, there should be some support from online food and retail sales, which businesses and consumers have increasingly pivoted towards,” said MAS.

A more extensive reopening of the economy towards the end of the year should improve footfall for retail businesses and eateries, although demand from foreign travellers is expected to recover only gradually.

Travel demand is “not expected to return quickly or substantially in the near term”, and the travel-related sector is expected to see a “bumpy road to recovery”, MAS said.

Some lifting of Singapore’s border restrictions began in late Q3 2021, with about 7,000 vaccinated travel lane passes issued to short-term visitors as of Oct 25. However, this makes up less than 1 per cent of monthly visitor arrivals pre-pandemic, said MAS.

A strong rebound in the travel-related sector may only materialise over 2022 when border barriers are removed “more substantially”, while a recovery to pre-pandemic output level is only anticipated after 2022, MAS added.

Meanwhile, the trade-related and modern services clusters will be supported by the recovery in major trade partners and “continued strength” in global electronics demand.

LABOUR MARKET, CORE INFLATION EXPECTED TO PICK UP

Together with the recovery of the domestic economy, the labour market recovery is likely to continue in the upcoming quarters, MAS said.

Its report noted that resident unemployment rate declined to 3.6 per cent in August after ticking up to 3.7 per cent in July, suggesting that labour market slack should continue to be absorbed.

Resident wage growth also picked up in Q2, bringing the wage level “back in line with its pre-COVID trend”, the report added. Firms across a range of industries also reported to have ended wage freezes and reversed wage cuts.

As the labour market slack dissipates over 2022, resident wage growth is likely to firm.

MAS added that costs of freight, consumer durables, energy and food commodities have risen, and could remain elevated in the near term as global supply and demand mismatches linger. These domestic and imported cost pressures “should support a steady increase in Singapore’s core inflation into 2022”.

“In particular, recovering private consumption amid a more extensive economic reopening next year should allow greater pass-through of accumulating business costs to consumer prices,” said MAS.

MAS core inflation is projected to come in “near the upper end” of the 0 to 1 per cent forecast range in 2021, and further increase to 1 to 2 per cent in 2022, the authority said.

CPI (Consumer Price Index)-All Items inflation is forecast to come in around 2 per cent this year and average 1.5 per cent to 2.5 per cent next year.