Singapore maintains 2021 GDP forecast as financial system contracts 5.4% final yr, lower than advance estimates

SINGAPORE: Singapore has maintained its development forecast for 2021 at Four to six per cent after an improved earlier estimate for final yr’s gross home product (GDP), stated the Ministry of Commerce and Business (MTI) on Monday (Feb 15). 

The financial system shrank by 5.Four per cent in 2020, barely higher than the advance estimate of a 5.eight per cent contraction and above the Authorities’s forecast vary of -6 to -6.5 per cent.

Nonetheless, that is Singapore’s first annual contraction since 2001 and its worst recession since independence. 

Final week, Prime Minister Lee Hsien Loong stated the majority of Singapore’s financial system is anticipated to get better this yr however some sectors – similar to transport, tourism and aviation – might take an extended time to take action.

READ: Singapore financial system anticipated to bounce again this yr, bulk of it ‘ought to be capable to get better’: PM Lee

MTI stated it had taken into consideration developments within the international and home financial atmosphere for the choice to keep up its 2021 forecast vary.

As an example, there was additional progress within the growth and deployment of COVID-19 vaccines since its final financial survey in November.

Though the pace of vaccine deployment varies, superior economies just like the US and Eurozone are more likely to attain inhabitants immunity by the second half of this yr, which ought to spur their financial recoveries, MTI stated.

However, development prospects for regional economies similar to Malaysia and Indonesia have weakened as a result of latest resurgence in infections.

“On steadiness, because the constructive developments in the important thing exterior economies broadly offset the unfavourable ones, Singapore’s exterior demand outlook stays largely comparable in comparison with three months in the past,” the ministry stated in its report.

READ: IN FOCUS: After COVID-19, the place are the Singapore financial system, workforce headed?

MTI additionally flagged a number of uncertainties and dangers that stay within the international financial system.

These embody important uncertainty surrounding the course of the pandemic and the trajectory of the worldwide financial restoration, the danger of economic system stresses that might emerge from a protracted financial restoration and continued geopolitical uncertainty involving the most important economies.

Domestically, MTI stated Singapore’s COVID-19 state of affairs stays underneath management and its vaccination programme is underneath means. However the tempo of border reopening has slowed amid the worldwide surge in COVID-19 instances and the emergence of extra contagious COVID-19 strains.

Due to this fact towards this exterior and home backdrop, the Singapore financial system is anticipated to see a gradual restoration over the course of the yr, though the outlook stays uneven throughout sectors, it added.

OUTLOOK FOR SECTORS

First, the outward-oriented sectors are more likely to profit from the pick-up in exterior demand. The manufacturing sector, particularly, is ready to broaden at a quicker tempo than beforehand projected as a consequence of sturdy semiconductor demand from the 5G and automotive markets.

The knowledge and communications, and finance and insurance coverage sectors are additionally anticipated to proceed to publish regular development, supported by sustained enterprise demand for IT and digital options, and credit score and fee processing providers respectively.

READ: Singapore financial system may have contracted 12.4% if not for COVID-19 Price range measures: MAS estimates

Second, the tourism- and aviation-related sectors, similar to lodging and air transport, are projected to see a weaker restoration than beforehand anticipated as a result of slower-than-anticipated lifting of world journey restrictions, in addition to sluggish journey demand.

These sectors should not anticipated to return to pre-COVID ranges even by the tip of the yr, MTI stated.

It will likely be an analogous case for consumer-facing sectors similar to retail commerce, and meals and beverage providers.

Whereas these are anticipated to profit from an enchancment in client sentiments amid a gradual turnaround in labour market situations, slower restoration in customer arrivals and capability constraints arising from protected administration measure will probably imply they might not return to pre-COVID ranges by end-2021.

Lastly, whereas the development and marine and offshore engineering sectors are projected to get better from the low base final yr, exercise ranges at development worksites and shipyards will proceed to be dampened by the requirement for protected administration measures.

The restoration in output in these two sectors can be anticipated to be sluggish as a result of plunge in contracts awarded for development works in 2020 and the weak point within the international oil and gasoline market respectively, MTI stated.

READ: The Huge Learn: Pummelled by COVID-19, Singapore’s financial system to start Okay-shaped restoration with Price range 2021

Regardless of the uneven outlook, HL Financial institution’s senior treasury strategist Jeff Ng stays optimistic.

In a word issued following the GDP report, he stated MTI’s development forecast for subsequent yr probably took into consideration issues about main economies.

“Some main economies needed to implement extra rounds of lockdowns in the beginning of 2021, as a consequence of one other spherical of outbreak,” he stated.

“Barring one other spherical of draw back dangers materialising, like a circuit breaker, we see some potentialities of Singapore even outperforming our 2021 GDP forecast of 6.Three per cent.”

“SUBSTANTIAL SUPPORT” FOR JOBS 

On what the newest 2021 outlook means for the labour market, a spokesperson from the Ministry of Manpower (MOM) stated given the uncertainties that remained, employers will probably nonetheless be cautious about hiring.

“They could see the orders coming in (or) gross sales coming in however some employers are hesitant about including manpower to their prices till they’re extra sure about the way forward for their enterprise,” Mr Kenny Tan, divisional director of manpower planning and coverage division at MOM, informed reporters at a press convention on Monday morning.

Despite the fact that the labour market ended 2020 “on a constructive word” with development in resident employment and a fall in unemployment charges, “substantial assist” will nonetheless be wanted this yr to maintain the momentum in hiring, he added.

Based on MOM’s preliminary estimates, Singapore’s labour market confirmed “a broad enchancment” within the final quarter of 2020 with unemployment persevering with to dip in December whereas extra residents discovered jobs.

“All in all, we’re a bit cautious and I feel tomorrow on the Price range, you will note what measures we’re ready to introduce this yr to provide hiring a lift and to maintain employment up this yr,” stated Mr Tan.

READ: Singapore’s labour market exhibits indicators of restoration as unemployment charges fall for second straight month

Singapore is ready to unveil its Price range 2021 on Tuesday. Whereas observers count on it to be an expansionary finances, it’s going to probably be extra calibrated than the extraordinary fiscal resuscitation utilized to the financial system final yr.

In the meantime, the Financial Authority of Singapore (MAS) affirmed that its stance stays acceptable and unchanged.

Deputy managing director Edward Robinson informed reporters that the central financial institution’s resolution to face pat in October final yr was “predicated on a gradual and an uneven restoration tempo factoring the potential for recurrent COVID-19 outbreaks globally”.

The central financial institution’s subsequent scheduled coverage resolution stays in April, he added.

HOW THE ECONOMY FARED IN 2020

For the entire of 2020, the Singapore financial system contracted by 5.Four per cent, a reversal from the 1.Three per cent development recorded in 2019.

“This represented the worst full-year recession since Singapore’s independence, and was a direct results of the financial fallout from the COVID-19 pandemic,” stated MTI’s everlasting secretary Gabriel Lim on the similar press convention.

He added that the majority sectors of the financial system, significantly these associated to tourism and aviation, contracted in 2020 however there have been additionally shiny spots.

Manufacturing was one such sector, increasing 7.Three per cent for the complete yr on the again of sturdy expansions within the biomedical manufacturing, electronics and precision engineering clusters. This marked a turnaround from the 1.5 per cent contraction in 2019.

The development sector shrank by 35.9 per cent, a pointy retraction from the 1.6 per cent development posted in 2019, pulled down by weak point in each public sector and personal sector development works.

The providers producing industries contracted by 6.9 per cent, reversing the two per cent development in 2019.

Most providers sectors noticed a full-year contraction as a result of widespread financial affect of the COVID-19 pandemic, apart from the finance and insurance coverage, and data and communications sectors, MTI stated.

For the ultimate quarter of 2020, the Singapore financial system contracted by 2.Four per cent on a year-on-year foundation, an enchancment from the 5.eight per cent contraction within the previous quarter.

On a quarter-on-quarter seasonally-adjusted foundation, the financial system expanded by 3.eight per cent, following the 9.zero per cent development recorded within the earlier quarter.