Singapore maintains 2021 GDP forecast as economy contracts 5.4% last year, less than advance estimates
SINGAPORE: Singapore has maintained its growth forecast for 2021 at 4 to 6 per cent after an improved earlier estimate for last year's gross domestic product (GDP), said the Ministry of Trade and Industry (MTI) on Monday (Feb 15).
The economy shrank by 5.4 per cent in 2020, slightly better than the advance estimate of a 5.8 per cent contraction and above the Government’s forecast range of -6 to -6.5 per cent.
Nonetheless, this is Singapore's first annual contraction since 2001 and its worst recession since independence.
Last week, Prime Minister Lee Hsien Loong said the bulk of Singapore's economy is expected to recover this year but some sectors - such as transport, tourism and aviation - may take a longer time to do so.
READ: Singapore economy expected to bounce back this year, bulk of it 'should be able to recover': PM Lee
MTI said it had taken into account developments in the global and domestic economic environment for the decision to maintain its 2021 forecast range.
For instance, there has been further progress in the development and deployment of COVID-19 vaccines since its last economic survey in November.
Although the speed of vaccine deployment varies, advanced economies like the US and Eurozone are likely to reach population immunity by the second half of this year, which should spur their economic recoveries, MTI said.
On the other hand, growth prospects for regional economies such as Malaysia and Indonesia have weakened due to the recent resurgence in infections.
“On balance, as the positive developments in the key external economies broadly offset the negative ones, Singapore’s external demand outlook remains largely similar compared to three months ago,” the ministry said in its report.
MTI also flagged several uncertainties and risks that remain in the global economy.
These include significant uncertainty surrounding the course of the pandemic and the trajectory of the global economic recovery, the risk of financial system stresses that could emerge from a protracted economic recovery and continued geopolitical uncertainty involving the major economies.
Domestically, MTI said Singapore’s COVID-19 situation remains under control and its vaccination programme is under way. But the pace of border reopening has slowed amid the global surge in COVID-19 cases and the emergence of more contagious COVID-19 strains.
Therefore against this external and domestic backdrop, the Singapore economy is expected to see a gradual recovery over the course of the year, although the outlook remains uneven across sectors, it added.
OUTLOOK FOR SECTORS
First, the outward-oriented sectors are likely to benefit from the pick-up in external demand. The manufacturing sector, in particular, is set to expand at a faster pace than previously projected due to robust semiconductor demand from the 5G and automotive markets.
The information and communications, and finance and insurance sectors are also expected to continue to post steady growth, supported by sustained enterprise demand for IT and digital solutions, and credit and payment processing services respectively.
READ: Singapore economy could have contracted 12.4% if not for COVID-19 Budget measures: MAS estimates
Second, the tourism- and aviation-related sectors, such as accommodation and air transport, are projected to see a weaker recovery than previously expected due to the slower-than-anticipated lifting of global travel restrictions, as well as sluggish travel demand.
These sectors are not expected to return to pre-COVID levels even by the end of the year, MTI said.
It will be a similar case for consumer-facing sectors such as retail trade, and food and beverage services.
While these are expected to benefit from an improvement in consumer sentiments amid a gradual turnaround in labour market conditions, slower recovery in visitor arrivals and capacity constraints arising from safe management measure will likely mean they would not return to pre-COVID levels by end-2021.
Lastly, while the construction and marine and offshore engineering sectors are projected to recover from the low base last year, activity levels at construction worksites and shipyards will continue to be dampened by the requirement for safe management measures.
The recovery in output in these two sectors is also expected to be slow due to the plunge in contracts awarded for construction works in 2020 and the weakness in the global oil and gas market respectively, MTI said.
READ: The Big Read: Pummelled by COVID-19, Singapore's economy to begin K-shaped recovery with Budget 2021
Despite the uneven outlook, HL Bank's senior treasury strategist Jeff Ng remains optimistic.
In a note issued following the GDP report, he said MTI’s growth forecast for next year likely took into account concerns about major economies.
“Some major economies had to enforce more rounds of lockdowns at the start of 2021, due to another round of outbreak,” he said.
“Barring another round of downside risks materialising, like a circuit breaker, we see some possibilities of Singapore even outperforming our 2021 GDP forecast of 6.3 per cent.”
"SUBSTANTIAL SUPPORT" FOR JOBS
On what the latest 2021 outlook means for the labour market, a spokesperson from the Ministry of Manpower (MOM) said given the uncertainties that remained, employers will likely still be cautious about hiring.
“They may see the orders coming in (or) sales coming in but some employers are hesitant about adding manpower to their costs until they are more certain about the future of their business,” Mr Kenny Tan, divisional director of manpower planning and policy division at MOM, told reporters at a press conference on Monday morning.
Even though the labour market ended 2020 “on a positive note” with growth in resident employment and a fall in unemployment rates, “substantial support” will still be needed this year to sustain the momentum in hiring, he added.
According to MOM's preliminary estimates, Singapore’s labour market showed "a broad improvement" in the last quarter of 2020 with unemployment continuing to dip in December while more residents found jobs.
“All in all, we are a bit cautious and I think tomorrow at the Budget, you will see what measures we are prepared to introduce this year to give hiring a boost and to keep employment up this year," said Mr Tan.
READ: Singapore’s labour market shows signs of recovery as unemployment rates fall for second straight month
Singapore is set to unveil its Budget 2021 on Tuesday. While observers expect it to be an expansionary budget, it will likely be more calibrated than the extraordinary fiscal resuscitation applied to the economy last year.
Meanwhile, the Monetary Authority of Singapore (MAS) affirmed that its stance remains appropriate and unchanged.
Deputy managing director Edward Robinson told reporters that the central bank’s decision to stand pat in October last year was “predicated on a gradual and an uneven recovery pace factoring the possibility of recurrent COVID-19 outbreaks globally”.
The central bank’s next scheduled policy decision remains in April, he added.
HOW THE ECONOMY FARED IN 2020
For the whole of 2020, the Singapore economy contracted by 5.4 per cent, a reversal from the 1.3 per cent growth recorded in 2019.
“This represented the worst full-year recession since Singapore’s independence, and was a direct result of the economic fallout from the COVID-19 pandemic,” said MTI’s permanent secretary Gabriel Lim at the same press conference.
He added that most sectors of the economy, particularly those related to tourism and aviation, contracted in 2020 but there were also bright spots.
Manufacturing was one such sector, expanding 7.3 per cent for the full year on the back of robust expansions in the biomedical manufacturing, electronics and precision engineering clusters. This marked a turnaround from the 1.5 per cent contraction in 2019.
The construction sector shrank by 35.9 per cent, a sharp retraction from the 1.6 per cent growth posted in 2019, pulled down by weakness in both public sector and private sector construction works.
The services producing industries contracted by 6.9 per cent, reversing the 2 per cent growth in 2019.
Most services sectors saw a full-year contraction due to the widespread economic impact of the COVID-19 pandemic, except for the finance and insurance, and information and communications sectors, MTI said.
For the final quarter of 2020, the Singapore economy contracted by 2.4 per cent on a year-on-year basis, an improvement from the 5.8 per cent contraction in the preceding quarter.
On a quarter-on-quarter seasonally-adjusted basis, the economy expanded by 3.8 per cent, following the 9.0 per cent growth recorded in the previous quarter.