SINGAPORE - Singapore's economy expanded at a slower annual pace in the third quarter compared with the previous three-month period when growth was boosted by a low-base effect.
Gross domestic product (GDP) rose 6.5 per cent on a year-on-year basis in the July-September period, moderating from 15.2 per cent growth in the previous quarter, said the Ministry of Trade and Industry (MTI) on Thursday (Oct 14).
The pace of growth was weaker than the 7 per cent forecast by economists in a Monetary Authority of Singapore survey last month, while a Bloomberg poll had predicted a 6.6 per cent expansion.
Analysts said the growth moderation was expected, given the return to phase two (heightened alert) and tightened Covid-19 restrictions between July and August.
However, on a quarter-on-quarter seasonally adjusted basis, MTI data showed the economy expanded by 0.8 per cent in the third quarter of this year, a reversal from the 1.4 per cent contraction in the preceding quarter.
The quarterly gain is a sign that sequentially the economy is on track for above-trend growth in the quarters ahead, analysts said.
MTI said the strong annual growth recorded in the second quarter of this year was largely due to the low base in the corresponding quarter of 2020 when GDP fell by 13.3 per cent due to the circuit breaker measures implemented from April 7 to June 1 last year, as well as the sharp fall in external demand amid the Covid-19 pandemic.
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said on an annual basis the first-half 2021 growth stands at 7.7 per cent, but will likely slow to around 5.8 per cent in the second half as low base effects fade.
This should bring full-year 2021 growth to within the MTI forecast range of 6 per cent to 7 per cent, said Ms Ling, whose own estimate stands at 6.7 per cent.
A higher than expected year-on-year growth in the April-June period, plans for a gradual reopening of borders and easing of Covid-19 curbs had raised hopes of a faster economic recovery for Singapore this year.
But analysts have also warned that the path to the higher official full-year growth forecast of 6 per cent to 7 per cent may still face challenges. Growth in the second half of the year will also be compared with the relatively high base set in the same period of 2020, they said.
They said that electronics, which accounts for about a quarter of Singapore's exports, may be nearing a peak in its growth cycle and the sector's expansion may start to taper off later this year.
The retreat in momentum was evident in Singapore's disappointing August non-oil domestic exports, which expanded at an annual pace of 2.7 per cent - the slowest since November last year.
That was due to supply chain disruptions caused by a global shortage of semiconductors, delays in shipping schedules due to port congestion and a shortage of containers, as well as skyrocketing freight costs.
The supply chain disruptions have further worsened in recent weeks due to ongoing power shortages in China and Covid-19-related restrictions due to a Delta-variant resurgence across the Asean region.
The manufacturing sector in the third quarter of this year grew by 7.5 per cent on a year-on-year basis, extending the 18 per cent growth in the previous quarter.
Manufacturing growth during the quarter was supported by output expansions in all clusters, except for chemicals.
The electronics and precision engineering segments of manufacturing continued to post strong growth, driven by sustained global demand for semiconductors and semiconductor equipment.
On a quarter-on-quarter seasonally adjusted basis, the value-added of the manufacturing sector remained unchanged in the third quarter, an improvement from the 2.1 per cent decline recorded in the second quarter.
The construction sector expanded by 57.9 per cent on a year-on-year basis in the third quarter of this year, following a 117.5 per cent growth in the preceding quarter.
MTI said the construction sector's growth was largely due to low base effects given the slow resumption of construction activities after the circuit breaker period last year.
In absolute terms, the value-added of the sector remained 25.1 per cent below its pre-Covid-19 level - during the third quarter of 2019 - with activity at construction worksites weighed down by labour shortages due to border restrictions on the entry of migrant workers.
Within the services sectors, the wholesale and retail trade, as well as transportation and storage, sector grew by 5 per cent year-on-year in the third quarter of this year, extending a 8.5 per cent growth in the previous quarter.
The information and communications, finance and insurance, and professional services sectors collectively expanded by 7.7 per cent on a year-on-year basis, extending the 10.1 per cent growth in the preceding quarter.
Ms Priyanka Kishore, the head of India and South-east Asia, at Oxford Economics, said while services suffered as domestic restrictions were retightened in the third quarter, border controls have started to gradually ease.
“(Thus), we expect the services sector to continue to rebound from a very low base. Retail, transportation and storage sectors would benefit from further reopening of borders,” she said. Ms Kishore has pencilled in growth of 6.4 per cent for the full year.