SINGAPORE - Even as Singapore's economy stays on the recovery track, enthusiasm over a significant growth acceleration is wearing off.
Vaccines have so far failed to put at rest the threat of a resurgence of the coronavirus pandemic.
The uncertainty over the trajectory of the pandemic is casting a long shadow on the sustainability of global demand and a robust revival of domestic consumption.
Those doubts are likely to make employers even more hesitant to hire, keeping unemployment at elevated levels and private consumption subdued.
Exercising caution on behalf of the policymakers, the Ministry of Trade and Industry (MTI) kept its economic growth forecast at 4 per cent to 6 per cent this year.
After an unprecedented 5.4 per cent economic contraction, the 2021 estimate looks stellar.
Indeed, the higher end of the forecast would make it the best year since 2011, when gross domestic product grew by 6.3 per cent.
However, the pace of growth this year can be partially attributed to the low base set in the second quarter of last year, when the economy shrank by 13.3 per cent - the worst in a quarter ever.
MTI made it clear that the economy will probably not return to pre-Covid levels until the end of this year.
The pre-Covid levels were not that great either.
The economy grew by just 1.3 per cent in 2019, the slowest pace of growth in a decade.
The 4 per cent to 6 per cent estimate was unveiled in November, when Pfizer and BioNTech had just announced positive results for their vaccine.
Many analysts had expected MTI to upgrade its view on 2021 growth as more vaccine candidates emerged and roll-outs in several countries began last month.
However, as countries around the world continue to struggle with waves of infections while scrambling to vaccinate their populations, those hopes of a quicker recovery have started to fade.
"Sequentially, growth momentum is normalising, shifting towards a level that is more consistent with the global recovery backdrop," said Mr Irvin Seah, senior economist at DBS Bank. "Borders remain largely closed, and global travel has yet to resume. Considering all of that, growth recovery would have to be gradual."
In the near term, at least, the outlook for the hospitality and aviation industries remains grim.
Mr Seah said that while efforts to stoke domestic travel and the establishment of green lanes and travel bubbles with other countries may provide some near-term impetus, it is not enough to make up for the shortfall in foreign tourists.
"We expect a gradual improvement in services growth in 2021, although the pace of recovery will be uneven across various services segments," he said.
While MTI expects advanced economies such as the United States and the euro zone to achieve herd immunity by the second half of this year, which should in turn spur their economic recoveries, it warned that uncertainties and risks in the global economy remain.
Adding to the cautious mood, Enterprise Singapore kept its forecast for non-oil domestic exports (Nodx) at between zero per cent and 2 per cent expansion, citing continued risks and uncertainties in the global economy.
Some analysts believe that the recent resurgence and new variants of Covid-19 may have set the clock back for a full reopening of the economy - a precursor to the full economic recovery needed to boost employment and income growth.
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said: "The reality appears to be sinking in that phase three of the circuit breaker relaxation is going to last for quite a while, at least months, possibly even years."
"Clearly, the international borders are also unlikely to reopen any time soon and hopes of early air travel bubbles have faded amid the recent resurgence of Covid cases and fresh lockdowns," she added.
Mobility restriction and travel curbs will keep growth in the service sector in general, and the retail and hospitality segments, in particular, weighed down. These segments account for the bulk of job opportunities in Singapore.
From a purely demand perspective, an elevated resident unemployment rate - last estimated at a decade-high of 4.4 per cent - will drag down private consumption that represents about one-third of Singapore's economy.
"The long tail of the Covid pandemic suggests that job opportunities may be slow to broaden across the sectors, hence the unemployment rate may stay elevated for longer. This may keep consumer confidence and personal spending on a more subdued note," sad Ms Ling.
She said factors that will keep the economy on track for MTI's forecast range include the demand for semiconductors - especially with the current global chip shortage - and the roll-out of 5G products and solutions.
Those pockets of external demand will likely drive the manufacturing sector this year, she noted. "But the momentum may moderate from the 2020 pace," she said.
The China plus-one strategy - where US and European companies avoid investing only in China and diversify their businesses into other countries in the region - and the global supply chain diversification push may also help drive growth across Asean countries, including Singapore.
Ms Ling expects the economy to grow by 5 per cent, in line with the mid-point of MTI's forecast range.
Dr Chua Hak Bin, analyst at Maybank Kim Eng, maintained his forecast of 4.5 per cent growth, citing the uneven recovery.
Mr Seah of DBS has predicted 5.5 per cent as he expects the recovery to gain momentum in the second half of the year, bringing about some improvement in labour market conditions.
Mr Euben Paracuelles, analyst at Nomura International, however, held on to his above-consensus forecast of 7.5 per cent.
"We remain optimistic of a still-robust manufacturing sector, which we think will receive a double boost from strong external demand for electronics, which is buoyed by the global tech up-cycle, as well as from pharmaceuticals output, which is benefiting from surging global vaccine demand," he said.