S'pore economy remains on track for recovery: Experts

GDP expands 14.3% in Q2 year on year, but contracts 2% compared with previous quarter

Economists say Singapore's recovery continues, driven by manufacturing and exports that were less hurt by Covid-19 curbs. ST PHOTO: GIN TAY
Economists say Singapore's recovery continues, driven by manufacturing and exports that were less hurt by Covid-19 curbs. ST PHOTO: GIN TAY

The Singapore economy remains on the recovery track, economists say, despite past and recent restrictions making it harder to gauge its trajectory.

It grew at a record pace in the second quarter of this year, though this was in comparison with the same period last year when it had plunged into its worst-ever recession.

Gross domestic product (GDP) expanded 14.3 per cent year on year in the April to June quarter, the Ministry of Trade and Industry (MTI) said yesterday.

This was largely due to the low base in the second quarter of last year, when GDP fell by 13.3 per cent due to the circuit breaker measures implemented from April 7 to June 1, MTI said.

On the other hand, compared with the first quarter of this year on a seasonally adjusted basis, the economy contracted 2 per cent in the second quarter.

The dip was expected because of the curbs imposed during the phase two (heightened alert) period, which stretched from May 16 to June 13.

In absolute terms, GDP in the second quarter remained 0.9 per cent below its pre-pandemic level in the same period of 2019, MTI noted.

Economists say that the recovery continues apace, driven by manufacturing and exports that were less hurt by the curbs.

The flash figures for the second quarter, however, were lower than the median of economists' forecasts in a Bloomberg poll that projected year-on-year growth of 14.8 per cent and quarter-on-quarter decline of 1.8 per cent.

MTI has kept its full-year 2021 GDP growth forecast of 4 per cent to 6 per cent and will review it next month.

However, thanks to an accelerated pace of vaccination, private-sector economists last month raised their 2021 growth forecast to 6.5 per cent, according to a Monetary Authority of Singapore survey.

Ms Selena Ling, OCBC Bank's chief economist and head of treasury research and strategy, said the latest MTI data shows GDP growth in the first six months is likely to reach an annual pace of 7.4 per cent.

Full-year growth may come close to 7 per cent - up from her earlier forecast of 6.3 per cent, she said.

Ms Ling expects recovery to pick up speed amid a ramp-up in vaccination rates and continued manufacturing resilience.

The MTI data showed the key manufacturing sector expanded by 18.5 per cent year on year in the second quarter, up from 11.3 per cent growth in the first quarter.

Still, on a quarter-on-quarter seasonally adjusted basis, manufacturing contracted by 1.8 per cent.

Non-oil domestic exports rose 8.8 per cent in May, below the 16 per cent forecast in a Bloomberg poll.

Mr Prakash Sakpal, senior economist for Asia at ING Bank in Singapore, said manufacturing remains a key driver, but the quarterly contraction was a setback.

"That means the recovery will be mainly dependent on exports regaining strength," he said.

For construction, the MTI data showed the sector expanded by 98.8 per cent year on year.

But in absolute terms, the sector was 31.6 per cent below the level it was in the second quarter of 2019.

On a quarterly basis, construction shrank by 11 per cent.

The services sector grew 9.8 per cent on an annual basis and shrank 1 per cent on a quarterly basis.

Most segments within the services group also remained below their growth levels reached in the pre-pandemic second quarter of 2019.

Ms Ling said: "This is a reminder that despite the whippy annual and quarterly prints, there are still sectors that have not recovered to their pre-Covid-19 levels yet, although we are gradually getting there."

Some economists joined her in raising their full-year forecasts.

UOB economist Barnabas Gan raised his estimate to 6.5 per cent, from 5.5 per cent previously.

Maybank Kim Eng analyst Chua Hak Bin now sees 6.8 per cent versus his previous prediction of 6.2 per cent.

Mr Irvin Seah, senior economist at DBS Bank, said he will stick to his 6.3 per cent projection for now.

Mr Euben Paracuelles, senior economist at Nomura International, also decided to keep his full-year forecast unchanged at 7.5 per cent.

All these projections, however, suggest that an upgrade of MTI's 4 per cent to 6 per cent growth forecast range is possible next month.

A version of this article appeared in the print edition of The Straits Times on July 15, 2021, with the headline 'S'pore economy remains on track for recovery: Experts'. Subscribe