Singapore economy to grow by 4-6% this year; 2020 contraction shaved to 5.4%

For the final quarter of 2020, the economy shrank by 2.4 per cent year on year. ST PHOTO: KUA CHEE SIONG

SINGAPORE - Singapore maintained its forecast for the economy to grow gradually this year out of its worst recession, and signalled continued support for the unemployed and vulnerable sections of the population.

The economy will grow by 4.0 to 6.0 per cent this year, said the Ministry of Trade and Industry (MTI) on Monday (Feb 15), sticking to its forecast announced last November, after weighing positive and negative developments in key external economies.

The higher end of the 2021 estimate would make it the best year since 2011, when GDP grew by 6.3 per cent.

However, the growth acceleration this year can be partially attributed to the low base set in the second quarter of 2020 when the economy shrank by 13.3 per cent - the worst in a quarter ever.

The ministry raised its final estimate for the coronavirus-hit 2020, stating that the economy shrank by 5.4 per cent, making it Singapore's worst-ever recession since independence.

Still, this figure tops the flash estimate of 5.8 per cent given last month and is higher than the 6.25 per cent average for the 6.5 to 6.0 per cent range it gave in November. The economy grew by 1.3 per cent in 2019.

This came about as the economy contracted less than initially estimated in the fourth quarter, shrinking by 2.4 per cent year on year, an improvement from the 5.8 per cent slump in the third quarter, and higher than the advance estimate of a 3.8 per cent contraction.

On a quarter-on-quarter seasonally-adjusted basis, the economy expanded by 3.8 per cent in Q4.

MTI said that since the last Economic Survey of Singapore in November 2020, there has been further progress in Covid-19 vaccine development and deployment, with several approved vaccines being rolled out in many economies around the world.

"Although the speed of vaccine deployment varies, advanced economies like the US and Eurozone are likely to reach population immunity by the second half of this year, which should in turn spur their economic recoveries," it said in a press release issued on Monday (Feb 15).

Growth prospects for regional economies such as Malaysia and Indonesia have however weakened due to the recent resurgence in infections.

"On balance, as the positive developments in the key external economies broadly offset the negative ones, Singapore's external demand outlook remains largely similar compared with three months ago."

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At the same time, uncertainties and risks in the global economy remain, with significant uncertainty surrounding the course of the Covid-19 pandemic and the trajectory of the global economic recovery, MTI said.

While Singapore's Covid-19 situation remains under control and its vaccination programme is also underway, the pace of border re-opening has slowed amid the global surge in Covid-19 cases and the emergence of more contagious strains of the virus.

"Against this external and domestic backdrop, the Singapore economy is expected to see a gradual recovery over the course of the year, although the outlook remains uneven across sectors."

MTI said the outward-oriented sectors - including trade-related services sectors (e.g., wholesale trade and water transport), are projected to benefit from the pickup in external demand.

The manufacturing sector is likely to expand at a faster pace than previously projected due to robust semiconductor demand from the 5G and automotive markets.

Meanwhile, the information & communications and finance & insurance sectors are expected to continue to post steady growth, supported by sustained enterprise demand for IT and digital solutions, and credit and payment processing services respectively.

At a virtual briefing on Monday, MTI permanent secretary Gabriel Lim said the pace of Singapore's recovery is expected to remain uneven across sectors, with the outward-oriented segments - including trade-related services like wholesale trade and water transport - projected to benefit from the pickup in external demand.

Mr Lim said that the bulk of economic growth this year will come from trade and manufacturing as the pace of recovery in domestic oriented sectors will be more gradual amid relatively subdued domestic private consumption.

“In some instances, private consumption will recover together with the broader economic recovery, but on a macro economic level,a large part of growth is still going to be linked to what happens in the rest of the world,” he said.

Labour market developments will remain a major drag for domestic consumption, he noted.

Mr Kenny Tan, a director at the Ministry of Manpower, said while resident employment has shown growth in recent months, bringing down the unemployment rate, the outlook remains uncertain.

“Some employers will still be hesitant about adding manpower to their cost until they are more certain about the future of their businesses,” he said.

Mr Tan said substantial government support will still be needed to maintain the hiring momentum from last year.

“In the Budget tomorrow you will see what measures we are prepared to introduce this year to give hiring a boost,” he said.

Mr Lim added that the government remains committed to help workers stay employed and aid those who may have lost their jobs or are vulnerable.

Analysts including Dr Chua Hak Bin of Maybank Kim Eng said support measures in Budget 2021 will likely be more targeted, and may include an extension of the Jobs Support Scheme for the hardest-hit sectors such as aviation, tourism, food services and retail.

“The focus will also be on creating jobs, reskilling the workforce, supporting digital transformation and enhancing food security, he said.

Mr Jeff Ng, senior treasury strategist at HL Bank Singapore, said MTI’s 2021 growth forecast reflects caution due to some concerns on major economies that have recently suffered new rounds of lockdowns.

He said there is still a good chance that Singapore’s economy will outperform the MTI forecast for 2021 and his own estimate of 6.3 per cent growth.

Mr Edward Robinson, deputy managing director of the economic policy group at the Monetary Authority of Singapore, said the central bank’s policy stance remains unchanged and appropriate. MAS expects an uptick in inflation this year.

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