Singapore's economy expected to shrink in Q1, MAS likely to leave policy unchanged: Poll

Analysts say external demand and reopening of international borders is key to Singapore's economic growth.
Analysts say external demand and reopening of international borders is key to Singapore's economic growth.ST PHOTO: GIN TAY

SINGAPORE (REUTERS) - Singapore's economy is expected to shrink only slightly in the first quarter of this year as activity continues to recover from a pandemic-induced shock, a Reuters poll showed, with the central bank expected to stay pat at its policy review next week.

Gross domestic product (GDP) is expected to contract 0.2 per cent in January-to-March from the same period a year earlier, according to the median forecast of 10 economists.

The Singapore economy, which is highly reliant on global trade and financial services, shrank 2.4 per cent year on year in the fourth quarter of 2020.

For the whole of last year, GDP contracted 5.4 per cent, but is forecast to grow 4 per cent to 6 per cent this year as the global economy gradually recovers, according to official data.

The outlook for manufacturing and exports is positive this year amid resilient demand for semiconductors and electronics products, while construction should rebound, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said.

"Services will likely see more gradual recovery with more easing of social distancing measures, and as borders start to reopen in the second half of the year to vaccinated travellers," they added.

Singapore has brought the local Covid-19 situation under control and has been ramping up vaccinations. But analysts say external demand and reopening of international borders is key to growth, with recovery for sectors such as tourism and aviation still some time away.

With the economy slowly getting back on better footing, all 15 economists polled by Reuters forecast that the Monetary Authority of Singapore (MAS) will keep its exchange rate-based policy unchanged at its next review on April 14.

Singapore's central bank manages monetary policy through exchange rate settings, letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

It kept policy unchanged at its last review in October, and said its accommodative stance will remain appropriate for some time.

"The MAS is expected to be more optimistic, but not hawkish," Bank of America Securities' economist Mohamed Faiz Nagutha wrote in a report. "A full return to pre-Covid GDP levels could still be some years away for the badly hit sectors."