SINGAPORE - Singapore closed its worst year of economic performance on an optimistic note as the economy shrank less than expected.
Gross domestic product (GDP) contracted by 5.8 per cent for the whole of 2020 amid the disruption to economic activities caused by the coronavirus pandemic, according to the Ministry of Trade and Industry’s (MTI) advanced estimates released on Monday (Jan 4).
The full-year growth is an improvement on MTI’s earlier forecast of a contraction of 6.5 per cent to 6 per cent made in November and is much lower than its previous estimate of a 7 per cent to 5 per cent shrinkage.
While the recession wreaked havoc across a broad swath of the economy and wiped out thousands of jobs, Singapore’s success in containing the Covid-19 spread and the subsequent lifting of mobility restrictions in the final two quarters helped alleviate the growth slump.
If reaffirmed in February, when MTI releases its next economic survey of Singapore, the record downturn would be less than the minus 6 per cent most private forecasters had expected - including those at DBS Bank and OCBC Bank.
In the fourth quarter, the economy shrank by 3.8 per cent year on year, after a revised 5.6 per cent drop in the third quarter, as more coronavirus related curbs on economic activities were lifted. GDP contracted by 0.2 per cent in the first quarter and by a historic 13.4 per cent in the second quarter.
MTI’s fourth quarter estimate compares with the median forecast of a 4.5 per cent year-on -year drop by economists in a Reuters poll.
Mr Jeff Ng, senior treasury strategist at HL Bank, said the better- than- expected fourth-quarter performance reflects Singapore’s success in containing Covid-19 cases that enabled economic activities to improve from the previous quarter.
On a quarter-on-quarter seasonally-adjusted basis, the economy grew 2.1 per cent, following the 9.5 per cent expansion in the third quarter which was aided by the phased resumption of activities following the April 7-June 1 circuit breaker, as well as the rebound in major economies during the quarter as they emerged from their own lockdowns.
Despite the better-than-expected fourth quarter and full year 2020 performance, MTI maintained its 2021 forecast for the economy to expand by 4 per cent to 6 per cent helped by the low base set this year.
Still the higher end of the 2021 estimate would make it the best year since 2011, when GDP grew by 6.3 per cent.
In fact, the economy will probably not return to pre-Covid-19 levels until the end of this year, MTI said in November.
Dr Chua Hak Bin, analyst at Maybank Kim Eng, said the recovery this year will be more U-shaped than V, with GDP returning to pre-pandemic levels only in early 2022.
“Recovery in 2021 will be conditional on services, which remains sluggish, while manufacturing has already surged strongly in 2020,” he said.
Ms Selena Ling, head of treasury research and strategy at OCBC Bank agreed, saying that there may be some moderation in the manufacturing growth momentum in the first quarter given that the period is traditionally slower due to the Chinese New Year holidays.
Also global restocking of goods that surged in the second quarter has started to subside which may weigh down growth in Singapore’s export-oriented manufacturing sector, she said.
Any big jump in growth numbers may only transpire in the second quarter and that too because of the very low base set in the same period of 2020, when the GDP shrank by 13.4 per cent year on year, Ms Ling noted.
Analysts believe the recovery will also be uneven.
While an effective vaccination will improve both business and consumer confidence, the timing of when international borders reopen remains key to when the wholesale and retail trade, accommodation & food services, and other services will recover, they said.
Ms Ling said the market hopes for continued fiscal support for the hard-hit sectors like aviation, tourism and hospitality-related industries in the Budget 2021 due on Feb 16.
“But there may be greater recalibration of support levels in order to prioritise repositioning and rebuilding for a post-Covid environment,” she said.
HL Bank’s Jeff Ng said that while manufacturing stellar performance may taper off a little, it will remain a key pillar of support for the economy.
However on a quarter-on-quarter seasonally-adjusted basis, the manufacturing sector contracted by 2.6 per cent, a pullback from the 12.6 per cent expansion in the third quarter.Growth of the sector was supported primarily by output expansions in the electronics, biomedical manufacturing and precision engineering clusters, which outweighed output declines in the transport engineering and general manufacturing clusters, MTI said.MTI’s data on Monday showed Singapore’s manufacturing in the fourth quarter grew 9.5 per cent year-on-year expansion, slightly less than the 10.8 per cent growth in the previous quarter.
The construction sector shrank by 28.5 per cent on a year-on-year basis in the fourth quarter, still an improvement from the 46.2 per cent contraction in the preceding quarter.
The improved performance of the sector came on the back of the resumption of more construction activities in the fourth quarter as compared to the previous quarter, MTI said.
On a quarter-on-quarter seasonally-adjusted basis, the construction sector grew by 34.4 per cent, extending the 39 per cent growth in the third quarter.
Within the services sectors, the wholesale and retail trade, transportation and storage sectors shrank by 11 per cent in the fourth quarter, moderating slightly from the 11.9 per cent contraction in the previous quarter.
MTI said that the performance of these services sectors in particular was weighed down by the trade-related segments such as wholesale trade and water transport, which contracted due to sluggish external demand as major economies around the world continued to grapple with the Covid-19 pandemic.
More downward pressure was added by the air transport segment, which shrank on the back of ongoing global travel restrictions and weak travel demand, the ministry said.
The accommodation and food services, real estate, administrative and support services and other services industries contracted by a combined 9.9 per cent, better than the 13.5 per cent contraction in the third quarter.
Within the group, the accommodation segment continued to shrink as a result of weak tourism demand, while the performance of the food services segment and other services industries - such as arts, entertainment and recreation was weighed down by constraints arising from the implementation of safe management measures, MTI said.
DBS Bank analysts Mr Kee Yan Yeo and Ms Janice Chua said they expect the recovery in 2021 to be underpinned by wider vaccine availability, more stable US-China trade relations, stronger regional trade ties, continued fiscal support and lower-for-longer interest rates.
“The Covid situation and vaccination rate will play a big role in Singapore’s near-term outlook with our economist expecting 2021 GDP to rebound 5.5 per cent,” they said in a research note.