SINGAPORE - The Singapore economy grew at a much faster pace in the first quarter of this year, running past earlier estimates by both the Government and most analysts.
The final estimate for first-quarter growth came at 1.3 per cent on a yearly basis, compared with an earlier gross domestic product (GDP) estimate of a 0.2 per cent rise and the 2.4 per cent contraction recorded in the previous quarter, the Ministry of Trade and Industry (MTI) said on Tuesday (May 25).
The January-March expansion was even higher than the 0.9 per cent growth projected by economists in a Reuters poll.
The surprisingly strong performance in the first quarter and confidence over robust demand for exports are likely to balance the risk from the recent tightening of domestic restrictions and border controls. Hence, Singapore maintained its economic growth forecast range for this year at 4 per cent to 6 per cent, MTI said in a statement.
The full-year forecast will be reviewed again in August, when there is more data and greater clarity over the global and domestic economic situations, it said.
Analysts said the first-quarter performance would have called for an upgrade of the official forecast. However, a recent Covid-19 upsurge at home and abroad have tempered such expectations.
MTI said uncertainties have increased and are characterised by both upside and downside risks, especially arising from the coronavirus pandemic at home and abroad.
Earlier this month, Singapore tightened its safety measures to contain a surprise surge in local community Covid-19 cases. The phase two (heightened alert) restrictions that will remain in effect until mid-June have raised concerns over the full-year growth target.
Mr Gabriel Lim, MTI’s permanent secretary, said the external economic environment has improved since February, mainly due to upgrades in the growth outlook for advanced economies like the United States.
“At the same time, however, the pandemic continues to disrupt activities in many economies, threatening to undermine any recovery,” he said at a media briefing after the release of the first-quarter Economic Survey report.
Mr Lim noted that while the recent tightening of domestic restrictions and border controls represents a setback to segments of the Singapore economy, the broader economy should still see a recovery this year in tandem with the global economic rebound and further progress in the domestic vaccination programme.
On a quarter-on-quarter seasonally adjusted basis, the economy grew by 3.1 per cent during the first three months of this year, extending the 3.8 per cent expansion in the fourth quarter of last year.
The first-quarter growth came on the back of the manufacturing sector’s 10.7 per cent year-on-year expansion, faster than the 10.3 per cent growth recorded in the previous quarter.
MTI said the Jan-March growth was due to output expansions in the electronics, precision engineering and chemicals clusters, which outweighed output declines in transport engineering, general manufacturing and biomedical manufacturing.
The wholesale trade sector expanded by 3.5 per cent year on year, faster than the 1.8 per cent growth registered in the previous quarter, and the retail trade sector grew by 1.4 per cent.
Growth of the information and communications sector accelerated to 6.4 per cent year on year, from the 2.6 per cent achieved in the previous quarter.
However, the construction sector contracted by 22.7 per cent and the transportation and storage sector shrank by 16.5 per cent, compared with the same period last year. The food and beverage service sector contracted by 9.4 per cent year on year.
MTI said that while it is still possible that the Singapore economy will outperform the 4 per cent to 6 per cent growth forecast for this year, there are also significant downside risks, with the most important being the trajectory of the pandemic.
“Countries are experiencing recurring waves of infections, with the emergence of more transmissible strains of the virus, the easing of safe management restrictions and delays in vaccinating populations,” MTI said.
The ministry said these resurgences, as well as the countries’ public health responses to them, will inevitably affect their economic growth. As these countries include some of Singapore’s major economic partners, the uncertainty in their outlook will also affect the Republic.
Mr Lim said the experience of the last 15 months shows there is hope that even if outbreaks flare up again, countries will be able to avoid repeated blanket lockdowns and their high economic cost.
He added: “Taking into account the above factors, and considering the larger-than-usual degree of uncertainty over the course of the pandemic globally as well as our domestic situation, MTI has decided to maintain the GDP growth forecast for 2021 at 4 per cent to 6 per cent for now.”
Mr Irvin Seah, senior economist at DBS Bank, said he would stick to his full-year forecast of 6.3 per cent as the stronger-than-expected first quarter will help to partially offset the potential decline in the April-June period.
Ms Selena Ling, OCBC Bank’s chief economist and head of treasury research and strategy, said the 4 per cent floor in the MTI forecast was quite conservative to start with, given the depth of last year’s recession - a record 5.4 per cent contraction.
For the rest of the year, the growth trajectory will depend on whether the Covid-19 situation and tightening measures get prolonged into the third quarter, both for the region and domestic economies, as well as whether manufacturing as the growth driver continues to sustain.
However, some analysts who had been more bullish did lower their projections.
Mr Sin Beng Ong, an analyst at JPMorgan Chase Bank, said he has revised down Singapore’s full-year 2021 GDP growth to 7 per cent from an earlier estimate of 7.8 per cent.
“The revisions are due to the tightening of stringency measures following a rise in Covid-19 cases, with its impact on the non-tradable sectors even as resilience in the manufacturing sector remains,” he said.