Singapore’s economy is likely to stage a better-than-expected recovery this year after posting in 2020 its worst recession on record. This optimism comes as the republic unexpectedly eked out a 0.2% y-o-y growth in the first quarter of the year, reversing three previous quarters of contraction that was caused by the pandemic.
With this, Singapore’s real gross domestic product (GDP) reached 99.6% of its pre-Covid-19 levels, thereby enabling the economy as a whole to almost recoup the output lost in the first half of 2020, notes the Monetary Authority of Singapore (MAS) in its biannual economic review released on April 28.
The central bank estimates that Singapore’s GDP will top 6% this year, above the current official estimate of the “upper end of the 4%–6%” range. This is barring a significant setback in activity from a weaker recovery of the global economy, or a surge in locally transmitted coronavirus cases.
According to Selena Ling, who heads the treasury research and strategy team at OCBC Bank, an explicit upgrade of the forecast range will depend on mutations of the coronavirus, vaccine supplies and the efficacy of vaccines. Just on April 28, Singapore reported a confirmed case of a vaccinated nurse who got infected again.
For now, the improved outlook follows stronger external demand, with pleasant surprises possibly from a stronger-than-anticipated upturn in the global electronics cycle. However, there are also downside risks pertaining to the mutation of the virus and efficacy of vaccination, according to MAS.
As flagged by economists earlier, the recovery is uneven. The manufacturing sector — the key driver of Singapore’s economy in the past year — is seen to continue playing this role this year, thanks to the upswing in the global technology cycle.
Conversely, the air transport and accommodation sectors — among the worst hit by the pandemic — continues to have a bleak prognosis. The outlook is further muted by a persistent rise in Covid-19 cases and the emergence of more contagious strains. “Accordingly, Singapore’s air transport industry is expected to continue operating at less than half of pre-Covid-19 levels even by year-end,” the MAS estimates.
“Domestic tourism will provide a thin lifeline to the accommodation and arts, enter- tainment and recreation industries, but reve- nue from such a short-term pivot will not be sufficient to compensate for the diminution of international travel,” adds MAS.
With the recently announced Singapore–Hong Kong air travel bubble set to begin on May 26, the light may just be at the end of the tunnel, mulls Ling. Flights are reported- ly fully sold despite prices hitting more than $1,000 — easily more than twice pre-pandemic levels. Still, she reckons that there may just be a long and challenging road ahead as Singapore’s air passenger traffic is not expected to recover to pre-Covid-19 levels till end-2024.
Meanwhile, construction activity — which came in at an all-time low last year, is likely to pick up, thanks to the backlog of projects. However, the sector faces challenges from manpower shortages following the travel ban on workers from India and rising material costs in the near term, MAS flags. To help firms cope, the government has announced several measures, including the temporary easing of a skills-certification rule for workers from China.
Turn in labour market
Despite the uneven recovery prospects, the republic’s healthier economy has rubbed off on the labour market with total employment growing by 4,800 in 1Q2021 ended March. This marks the metric’s first quarterly expansion since the start of the pandemic.
The unemployment rate — which had reached a high of 3.5% in September — correspondingly eased to 2.9% in March, a slight improvement from February’s 3.0%. However, the unemployment rate is still “elevated com- pared to pre-Covid-19 rates”, warns the Ministry of Manpower (MOM) in its Labour Market Report on April 28. For comparison, the unemployment rates for Singaporeans and residents were 3.3% and 3.2% respectively in 2019.
Nonetheless, the “significant turn” over the past few quarter suggests that employers are more confident, notes Manpower Minister Josephine Teo. This is seen by the 73% of companies who said that they intend to hire in the next two months, a poll by the MOM indicates. This is up from 65% in December 2020 and 52% in June.
Aside from employment, retrenchments for the quarter improved with a decline of 2,100. MOM estimates that incidence of retrenchment will decline — from 2.8 retrenched persons per 1,000 employees in 4Q2020, to 1.1 in 1Q2021.
The policy support rendered to resident workers is likely to have facilitated the continued strong recovery of resident employment in 4Q2020, MAS notes, adding that recovery should continue at a steady pace in the quarters ahead. This has translated to a decline in the overall slack in the domestic labour market in 4Q2020.
UOB economist Barnabas Gan expects the overall unemployment rate to improve to 2.6% in 4Q2021, although recovery is uneven across sectors. Electronics, unsurprisingly, will see strong demand, while the services sector has need for more hands, although that is more because of a low base from last year, he says.
Meanwhile, Maybank Kim Eng (MKE) economist Chua Hak Bin says total employment is unlikely to recover to pre-pandemic levels by the end of the year in spite of the probable increase in GDP to pre-pandemic levels.
Muted relationship
In the months ahead, a more muted relationship is expected between the response to Covid-19 and economic activity. This will come as firms and individuals gain greater experience on how to operate during a pandemic, says MAS.
Some semblance of this is evident with the global economy set to pick up pace, with output hitting end-2019 levels by 2Q2020 ending in June before expanding by 6.2% for the full year. This follows the substantial fiscal stimulus expected to take effect in several economies such as the US, and the faster-than-expected rollout of vaccination programmes, MAS details.
With India facing a major economic and health crisis, the possibility of such a global recovery has raised doubts. MKE’s Chua reckons that the catastrophic wave there will exacerbate the unevenness of the K-shaped global recovery, but is not likely to derail global growth.
A stronger push towards a global recovery will come from bigger economies such as the US, China and the European Union, he says. “The global recovery is unbalanced and fragile, with advanced countries experiencing a faster recovery to many emerging economies given the uneven vaccine rollout,” Chua elaborates.
