S'pore economy grows at fastest pace since 2019

The economy grew at an unexpected pace in the first quarter of the year led by gains in the manufacturing sector, reversing three quarters of contraction.

Growth may continue to surprise for another quarter, partially helped by low base-year effects, and challenge the higher limit of the official forecast for this year.

But most analysts believe the pace of expansion will taper off in the second half amid continued slack in the labour market and curbs on international travel.

The gross domestic product (GDP) in the January to March period grew by 0.2 per cent on a year-on-year basis, an about-turn from the 2.4 per cent contraction recorded in the previous quarter, according to the Ministry of Trade and Industry's (MTI) advance estimates released yesterday.

This was the economy's first quarterly growth since the fourth quarter of 2019.

GDP was flat in the same quarter last year, before the onset of Covid-19 and mobility restrictions.

The January to March expansion surprised analysts, who had tipped the economy to shrink 0.5 per cent year on year in a Bloomberg poll.

Mr Prakash Sakpal, senior economist at ING Group in Singapore, said growth is poised for a significant jump in the second quarter as the sharp plunge of activity during the circuit breaker last year in the same period would exaggerate the comparison.

But the pace of growth was unlikely to last, he said.

"As the base effects work through the year, we expect the yearly GDP growth rate to taper to low single digits over the second half of the year," he said.

Growth in GDP in the January to March period on a year-on-year basis, according to the Ministry of Trade and Industry's advance estimates released yesterday.

Contraction recorded in the previous quarter.

Singapore's GDP growth this year is likely to exceed the upper end of this official forecast range, barring a setback to the global economy, said the Monetary Authority of Singapore in its biannual review.

The economy contracted 5.4 per cent last year in its worst recession ever.

MTI had in February maintained its GDP growth forecast at 4 per cent to 6 per cent. However, the Monetary Authority of Singapore (MAS) said yesterday in its biannual review that "Singapore's GDP growth this year is likely to exceed the upper end of the official 4 per cent to 6 per cent forecast range, barring a setback to the global economy".

Meanwhile, the MAS maintained its 0 per cent per annum rate of appreciation of its Singdollar policy band, saying it expects an above-trend pace of economic growth this year even as the sectors worst hit by the crisis continue to face significant demand shortfalls.

The central bank said the negative output gap - which occurs when actual output is less than what an economy could produce at full capacity - will narrow through the course of this year.

"However, significant uncertainties remain, including the possibility of further virus mutations and premature relaxation of social restrictions by governments, which could derail the global and domestic recovery," it said.

OCBC Bank chief economist Selena Ling said: "MAS' open-ended statement, without citing a revised range and a 'significant uncertainties' caveat, could potentially be implied to rein in any potential runaway economic optimism and premature monetary policy tightening expectations."

According to MTI's estimates - largely based on the first two months of the year - the manufacturing sector was the best performer. Construction shrank as it continued to suffer some Covid-19 work restrictions.

The service industry - also weighed down by mobility curbs - also shrank, but the decline was smaller than the previous quarter.

Mr Irvin Seah, senior economist at DBS Bank, said: "Performance in the service sector has been mixed, and such a phenomenon will persist until the borders have reopened."

He kept his forecast for this year unchanged at 6.3 per cent. OCBC's Ms Ling also maintained her 6 per cent full-year prediction.