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Singapore economy grows 14.7% in Q2, full-year GDP growth forecast upgraded to 6-7%

SINGAPORE: Singapore's economy grew by 14.7 per cent year-on-year in the second quarter of 2021, faster than the 1.5 per cent growth in the previous quarter, the Ministry of Trade and Industry (MTI) said on Wednesday (Aug 11). 

The ministry also upgraded the GDP growth forecast for 2021 to 6 to 7 per cent, up from 4 to 6 per cent. This is based on the "better than expected" performance of the Singapore economy in the first half of the year, as well as the latest external and domestic economic developments, MTI said. 

The 14.7 per cent Q2 figure beat a Reuters poll, which predicted a 14.2 per cent increase.

With the COVID-19 situation in Singapore stabilising and the country's vaccination programme on track, "Singapore's economy is expected to continue to see a gradual recovery in the second half of the year, supported in large part by outward-oriented sectors", according to the ministry. 

The progressive easing of domestic and border restrictions will also play a part in supporting the recovery of Singapore's consumer-facing sectors and alleviate labour shortages in sectors that are reliant on migrant workers, it added. 

"LOW BASE"

The strong growth in the second quarter was largely due to the "low base" in the same period last year when GDP fell by 13.3 per cent due to the COVID-19 "circuit breaker" and a sharp drop in external demand brought on by the pandemic, said MTI.

Taking into account the GDP performance in the first quarter of 2021, the Singapore economy expanded by 7.7 per cent on a year-on-year basis in the first half of 2021.

Sharp improvements across all clusters in the manufacturing sector supported the overall expansion in the April to June period. The sector, as a whole, grew 17.7 per cent year-on-year, with the transport and precision engineering clusters seeing the largest increases in output. 

The constructor sector, led by an expansion of public and private projects, was also a big growth driver. It expanded 106.2 per cent from the same period last year, a big turnaround from the 23.2 per cent fall in the previous quarter.

The wholesale trade sector expanded by 2.9 per cent year-on-year, led by the machinery, equipment and supplies segment. 

The retail trade sector expanded by 50.7 per cent, while the transportation and storage sector grew by 20.9 per cent year-on-year. 

The accommodation sector expanded by 13.2 per cent year-on-year, easing from the 16.3 per cent growth in the preceding quarter.

"Growth during the quarter was supported by government and domestic tourism demand, even as weak international visitor arrivals due to travel restrictions continued to weigh on the sector," said MTI. 

The food and beverage services sector grew by 36.7 per cent year-on-year, supported by an increase in sales volumes at restaurants, cafes, food courts and other eating places and fast food outlets from the low base caused by last year's "circuit breaker". 

Food caterers, however, continued to be adversely affected by restrictions on large-scale events and gatherings, said MTI. 

The information and communications sector expanded by 9.6 per cent, while the finance & insurance sector came in at 9.1 per cent year-on-year. 

The real estate and professional services sectors also grew year-on-year by 25.8 per cent and 9.4 per cent respectively.

The administrative and support services sector was the only one to contract year-on-year, shrinking by 1.3 per cent, moderating from the 15.1 per cent contraction in the previous quarter. 

"Within the sector, the rental & leasing segment shrank as travel restrictions adversely affected the rental and leasing of air transport equipment," MTI said. 

ECONOMIC OUTLOOK FOR 2021 

The recovery of the various sectors of the economy over the course of the year is expected to remain uneven, said MTI.

The ministry added that the performance of Singapore economy for the first half of 2021 was "stronger than expected". It noted that Singapore's vaccination programme "continued to make good progress" and that the COVID-19 situation had "stabilised".

"Barring a major setback in the global economy, the Singapore economy is expected to continue to see a gradual recovery in the second half of the year, supported in large part by outward-oriented sectors," said MTI.

Such sectors include manufacturing and wholesale trade, and finance and insurance, and information and communications. 

However, the aviation- and tourism-related sectors are projected to recover more slowly than previously expected, said MTI. 

"Even though domestic border restrictions may be eased towards the later part of the year ... demand is not expected to return quickly as travel restrictions globally are likely to be lifted cautiously and global travel demand may also remain sluggish amidst the spread of more contagious strains of the virus," the ministry added. 

"As such, activity in these sectors is expected to remain significantly below pre-COVID levels even by the end of the year." 

Consumer-facing sectors such as retail trade and food and beverage services that have been adversely affected by ongoing domestic restrictions "should start to recover as the restrictions are eased over the course of the year and consumer sentiments improve in tandem with better labour market conditions", according to the ministry. 

Still, these sectors are not expected to return to pre-COVID levels by year-end, in part due to the subdued tourism outlook, it cautioned. 

The construction and marine & offshore engineering sectors are also projected to see some recovery, though labour shortages arising from prevailing border restrictions on the entry of migrant workers are likely to continue to weigh on the recovery of activities at worksites and shipyards, MTI said. 

"While border restrictions may be eased towards the later part of the year, thus alleviating labour shortages, the output of these sectors is expected to remain substantially below pre-COVID levels even at the end of the year."

ECONOMIC RECOVERY BOOSTED BY VACCINATIONS, HIT BY LOCKDOWNS

Giving its view on the external economic environment, MTI projected that the US and Eurozone economies would pick up in the second half of 2021.

It attributed this to high vaccination rates that have allowed these advanced economies to go ahead with reopening plans, albeit an uptick in COVID-19 cases.

But MTI warned that all this could change "if vaccination progress stalls due to vaccine hesitancy or if the efficacy of existing vaccines is weakened as a result of virus mutations or waning antibody levels".

Turning to Asian economies, MTI said China's growth could ease in the second half of the year, partly due to restrictions that have been imposed to contain the latest COVID-19 outbreak.

A quicker recovery is expected of the Japanese economy in the second half of 2021, MTI said. The reimposition of a COVID-19 state of emergency in Tokyo and Okinawa notwithstanding, strong external demand will continue to support growth, the ministry added. 

Southeast Asian economies - particularly ones which have been slow to vaccinate their populations and have had to reimpose restriction measures to curb a resurgence in infections - are likely to recover slower than expected. 

MTI said the recovery in domestic demand in countries such as Malaysia, Indonesia and Thailand are expected to be dampened by the tightening of restrictions to contain the surge in COVID-19 infections, though external demand "should lend some support" to their GDP growth.

Besides COVID-19, continued geopolitical uncertainty involving major economies could have an impact on trade and the global economic recovery, MTI said. It also warned that inflation could pose risks, especially if supply-side bottlenecks persist alongside a stronger pickup in final demand.

Source: CNA/vc(ac)

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