News analysis

Covid-19 resurgence turns Singapore growth outlook murkier

Manufacturing stood at 2.2 per cent versus accommodation's input of 0.1 per cent.ST PHOTO: LIM YAOHUI

SINGAPORE - The jagged pace of recovery, marred by Covid-19 resurgence in Singapore and elsewhere, has clouded the growth outlook.

The progress in vaccination, especially in major economies like the United States and China, raises hope that external demand will hold and continue to lift Singapore's trade-dependent manufacturing sector, which has so far led the recovery here.

But, at the same time, secondary outbreaks continue to disrupt economic activity and threaten to undermine the recovery.

The first quarter data shows how important external demand is for Singapore.

Manufacturing grew at 10.7 per cent on a yearly basis in the January-March period, less than the accommodation sector's 19 per cent expansion. But in terms of contribution to growth, manufacturing stood at 2.2 per cent, versus accommodation's input of 0.1 per cent.

The stellar performance by manufacturing pushed first-quarter gross domestic product (GDP) growth to 1.3 per cent year on year, way higher than the Government's earlier estimate of 0.2 per cent and economists' prediction of 0.9 per cent in a Reuters poll.

Without the recent Covid-19 surge, the surprisingly strong first-quarter performance should have made the case for an upgrade of the Ministry of Trade and Industry's (MTI) forecast range of 4 per cent to 6 per cent.

The potential for such an upgrade was flagged by the Monetary Authority of Singapore when its policy statement in April stated that the pace of growth this year may breach the upper end of the MTI forecast.

However, the May 8 to June 13 phase two (heightened alert) restrictions had dampened those hopes.

Mr Irvin Seah, senior economist at DBS Bank, said the curbs will likely put a dent on the second-quarter GDP growth performance, and a sequential, or quarter-on-quarter, pullback is on the cards.

"The second quarter will likely register a decline in quarter-on-quarter growth," he added.

However, unless the heightened alert period gets extended significantly or new stiffer measures are introduced, Mr Seah believes the impact on full-year growth will be partially offset by the stronger than expected performance in the first quarter.

MTI said yesterday that while it is still possible for the economy to outperform the forecast for this year, there are also significant downside risks, with the most important being the trajectory of the pandemic.

Recurring waves of infections faced by Singapore's major trading partners can hurt their demand for goods and services and, in turn, limit growth here.

Ms Selena Ling, chief economist and head of treasury research and strategy at OCBC Bank, said even if the domestic curbs are lifted as scheduled after June 13, restrictions such as those on travel from higher-risk countries may persist for months.

She said the recovery prospects for some industries, including food and beverage, commercial real estate, events, aviation and other hospitality-related businesses, have been delayed to say the least and may continue to be mired below pre-coronavirus levels .

"Hence, a more uneven sectoral divergence appears inevitable for the next few quarters," she said.

Ms Ling noted that while the labour market had stabilised towards end-2020 and early 2021, the recent curbs raise the risk of unemployment dragging at around current levels for longer than anticipated earlier.

Mr Barnabas Gan, economist at UOB Group, said Singapore's externally oriented sectors, such as manufacturing, wholesale & retail trade, and financial services, should continue to support economic growth for the year ahead.

Mr Gan added thta he would stick to his full-year 2021 growth outlook at 5.5 per cent. Mr Seah also maintained his 6.3 per cent projection, and Ms Ling expected the year to end at around 6 per cent.

However, some analysts who had been more bullish did lower their projections.

Mr Sin Beng Ong, an analyst at JPMorgan Chase Bank, said he has revised down full-year 2021 GDP growth to 7 per cent from an earlier estimate of 7.8 per cent.

"The revisions are due to the tightening of stringency measures following a rise in Covid-19 cases, with its impact on the non-tradeable sectors even as resilience in the manufacturing sector remains," he said.

Ms Ling said if curbs, including those on travel, persist beyond the June deadline, there could potentially be growing calls from the worst-hit industries for more support measures.

"As such, additional fiscal measures remain an option on the table and it is plausible that some existing measures like the Jobs Support Scheme for ier 1 industries and the Temporary Bridging Loan etc are extended further," she said.

Most of the support schemes are likely to wrap up by September.

Analysts say fiscal spending, including on support schemes, has so far partially plugged the hole left by the drop in private consumption that accounts for about 30 per cent of the GDP.

For instance, in the first quarter, consumption expenditure shrank 3.9 per cent.

The drop came on the back of a 7.9 per cent fall in private consumption, even as public expenditure rose 6.7 per cent.