S'pore's Q2 figures raise hopes for faster economic recovery
1.8% contraction less than expected, but analysts warn of challenges ahead
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In the second quarter, Singapore's construction sector output more than doubled year on year, as most local building activities were suspended during last year's circuit breaker period.
ST PHOTO: KELVIN CHNG
A smaller-than-expected quarter-on-quarter contraction in the April to June period, plans for a gradual reopening of borders and easing of Covid-19 curbs have raised hopes of a faster economic recovery for Singapore.
But analysts warned that the path to the higher official growth forecast of 6 per cent to 7 per cent may still have challenges. For one thing, growth in the second half of the year will be compared with the relatively high base set in the same period of last year.
The economy expanded by 14.7 per cent year on year in the second quarter, faster than the initial estimate of 14.3 per cent growth, the Ministry of Trade and Industry (MTI) said yesterday.
This was largely due to the low base in the same period last year. In absolute terms, gross domestic product remained 0.6 per cent below its pre-pandemic level in the second quarter of 2019, MTI said.
On a quarter-on-quarter seasonally adjusted basis, the Singapore economy contracted by 1.8 per cent, a reversal from the 3.3 per cent expansion in the first quarter, but less than the 2 per cent contraction earlier estimated.
Beyond the base effects, which mostly boosted the services sector, the bulk of growth came from manufacturing, which expanded by 17.7 per cent year on year, extending the 11.4 per cent growth in the previous quarter.
Construction sector output more than doubled as most local building activities were suspended during the circuit breaker period last year. But in absolute terms, the sector's value-added was 29 per cent below its pre-pandemic level for the same period in 2019.
The low base comparison also accounted for the year-on-year rebound in retail trade, food and beverage services, real estate, and transport and storage.
Mr Lam Yi Young, chief executive of the Singapore Business Federation, said the resumption of business travel and easing of border controls will help. But even as Singapore transitions towards being a Covid-19 resilient nation, the situation in other countries grappling with the Delta variant will continue to pose risks to businesses, he said.
"We need to continue to be vigilant and agile to manage the impact to business operations in other countries," said Mr Lam.
UOB economist Barnabas Gan said: "Singapore's economy has been supported by the favourable export environment since the start of this year."
But he cautioned that Covid-19-related risks may evolve in the months ahead for Singapore, and for its key trading partners. He said: "Anecdotal evidence has shown how quickly issues may turn south, should Covid-19 risks magnify."
Mr Edward Robinson, the Monetary Authority of Singapore's (MAS) chief economist and deputy managing director of economic policy, said the central bank's current policy stance of zero appreciation of the trade-weighted Singapore dollar remains appropriate.
However, MAS will continue to watch global developments, he said.
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said: "A faster pace of reopening and relaxation of restriction measures and potential resumption of some international travel later this year would pave the way for a more stable recovery trajectory."
She added that while MAS may stay at status quo at the October monetary policy review, it could lay the groundwork for a recalibration of policy settings next year, given that the economy should have recovered to pre-pandemic levels by then.
