Singapore GDP growth to slow to 3-5% in 2022 after 7% gain this year

SINGAPORE - Singapore's economic growth will slow to between 3 per cent and 5 per cent next year amid an uneven recovery at home and lingering uncertainty over global growth, the Ministry of Trade and Industry (MTI) said on Wednesday (Nov 24).

MTI said gross domestic product (GDP) growth this year will come at around 7 per cent, the top end of  an earlier forecast range of 6 per cent to 7 per cent, aided by export-oriented sectors led by manufacturing.

In 2022, however, travel and domestic restrictions due to the Covid-19 pandemic may continue to cap recovery of aviation- and tourism-related sectors as well as consumer-facing sectors such as food and beverage services and retail trade.

At a virtual media briefing on Wednesday, Mr Gabriel Lim, Permanent Secretary for Trade and Industry, said: “The food and beverage services sector is not likely to return to pre-Covid-19 levels by end-2022 as some dine-in and event restrictions could remain in place, while the recovery in visitor arrivals is expected to be slow.”  

The final estimate of growth in the third quarter came in at 7.1 per cent on a year-on-year basis, slower than the 15.2 per cent expansion recorded in the previous quarter, but higher than an earlier projection of 6.5 per cent.

This brought GDP growth in the first three quarters of 2021 to 7.7 per cent, MTI said.

On a quarter-on-quarter seasonally adjusted basis, the economy expanded by 1.3 per cent in the third quarter, compared with the 1.4 per cent contraction in the second quarter.

For 2022, Singapore's high vaccination rate and steady roll-out of booster shots will continue to facilitate the progressive easing of domestic and border restrictions, which will support the recovery of consumer-facing sectors and alleviate labour shortages in sectors that are reliant on migrant workers.

Air travel and visitor arrivals are also expected to improve with the loosening of travel restrictions and expansion of vaccinated travel lanes.

Still, Mr Lim said that some segments of the retail trade sector, such as department stores and malls, are likely to remain lacklustre, in part due to weak visitor arrivals.

Recovery of the aviation- and tourism-related sectors may also be gradual as global travel demand will take time to recover and travel restrictions could persist in key visitor source markets.

However, the progressive easing of border restrictions on the entry of migrant workers may help the construction and marine and offshore engineering sectors.

“Nonetheless, as it will take time to fully address the labour shortfall, labour shortages are likely to continue to keep the output of the two sectors below pre-pandemic levels in 2022,” the permanant secretary said.

The bulk of economic growth will continue to come from outward-oriented sectors such as manufacturing and wholesale trade given robust external demand.

But given the high base set for outward-oriented sectors this year, their 2022 growth rates may come in lower. That also explains why the pace of overall GDP growth will slow next year. 

“Against this backdrop, the recovery of the various sectors of the economy in 2022 is expected to remain uneven,” Mr Lim said.

Analysts noted that while the projected growth rate for 2022 is slower than the pace this year, it will still beat the five-year average of 3 per cent Singapore recorded before 2020.

UOB economist Barnabas Gan said: “Despite the relatively high base set in 2021, Singapore’s economy is expected to stay underpinned by the favourable export and manufacturing sectors through 2022.”

He said growth will also be supported by the expected recovery for Singapore’s key trading partners in Asia as they bolster their vaccination efforts into 2022.

Dr Chua Hak Bin, Maybank Kim Eng’s chief economist, has raised his 2022 GDP growth forecast for Singapore to 3.8 per cent, from 3.5 per cent previously, on the back of a firmer recovery in construction and services, which will be supported by the gradual reopening and relaxation of border controls.

Construction grew in the third quarter of 2021 at an annual pace of 66.3 per cent, helped by a low base set in 2020 but faster than the 7.2 per cent clocked by manufacturing.

Services industries grew 6.3 per cent in the third quarter, led by information and communications, which rose 10.4 per cent. 

Globally, GDP growth in most advanced economies is expected to moderate as compared with 2021 but remain above pre-Covid-19 trend rates, MTI said.  Also, continued geopolitical uncertainty involving the major economies could weigh on trade and the global economic recovery.

In contrast, key South-east Asian economies are projected to see faster growth in 2022 as they progressively resume more economic activities. However, supply bottlenecks and disruptions could continue to weigh on industrial production in some of the economies in the near term.

MTI said there are still downside risks in the global economy as the trajectory of the pandemic remains uncertain.

"If global supply disruptions are more protracted than expected due to further Covid-19 outbreaks, logistical or production constraints, global industrial production may be constrained for longer."

Also, protracted supply disruptions alongside a stronger pickup in demand, and rising energy and commodity prices, could lead to more persistent inflation.

Higher inflation could result in an earlier or larger increase in interest rates than anticipated, thereby triggering a tightening of global financial conditions.

Consumer prices in October jumped to 3.2 per cent year-on-year, the most since March 2013, helped by higher car prices and housing rents. Core inflation, which excludes rents and private road transport costs, climbed to 1.5 per cent - the highest level in nearly three years.

Mr Edward Robinson, Monetary Authority of Singapore deputy managing director, said at the briefing that the central bank remains vigilant to the rapid pace of price increases, its persistence and the extent to which it is broadening.

He said the firmer inflation pressures were taken into account last month when MAS ended its 19-month easing stance and slightly raised the slope of its Singapore dollar nominal effective exchange rate policy band, up from zero per cent.

As a general rule, a strong currency makes imports cheaper.