Analysts have been pleasantly surprised by advance estimates for Singapore’s 4Q2021 GDP growth which came in at 5.9%, beating market estimates of 5.1%.
See: Singapore's GDP up by 5.9% in 4Q, 7.2% for 2021: MTI advance estimates
According to figures released by the Ministry of Trade and Industry (MTI) on Jan 3, full-year GDP growth came in at 7.2%, rebounding from the 5.4% contraction recorded the year before.
“Overall, the strong 4Q data brought full year 2021 growth to the strongest since 2010 (14.5%),” remarks Citi Research’s Kit Wei Zheng.
For analysts, the better-than-expected 4Q2021 GDP figures marked a solid end to the year, underpinned by the manufacturing sector. “[Manufacturing] commanded the lion-share of the recovery, growing 14% y-o-y in the last quarter of 2021, thus marking six consecutive quarters of y-o-y expansion and translating into a full-year rise of 12.8%,” notes Barnabas Gan, economist at UOB.
On the flip side, analysts highlighted that labour shortages remain a major hurdle for the construction sector, which grew by only 2% y-o-y in 4Q2021, much slower compared to the 66.3% expansion logged in 3Q2021.
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Analysts largely expect the labour crunch and other headwinds to continue negatively impacting the sector in 2022. “Existing border control measures will continue to weigh down on the performance of the sector,” says Irvin Seah, senior economist at DBS Group Research.
"And besides manpower costs, rising prices for commodities and construction materials could also take a toll on the margins and the pace of recovery in the sector in the coming quarters,” he adds.
Meanwhile, analysts positively viewed the recovery of the services sector, which expanded 4.6% y-o-y in 4Q2021, with positive growth from all clusters. While MTI attributes the expansion to the robust performance of Singapore’s merchandise exports as well as low-base effects positively impacting the transportation and storage sector, UOB’s Gan views that the stronger number of inbound visitors in 4Q also contributed to the better performance. Singapore saw 41,140 inbound visitors in November, nearly double 23,980 persons in October.
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For Maybank Research analysts Chua Hak Bin and Lee Ju Ye, the final 4Q GDP estimates, which will be released by MTI in February, will likely see a “small upgrade”, supported by the services sector. The analysts anticipate the wholesale and retail trade sector to come in higher than advance estimates, given the “robust performance” in non-oil re-exports and retail sales in the 4Q.
Looking ahead, analysts are largely optimistic on Singapore’s economy for 2022 and have retained their GDP forecasts, which they believe will be supported by Singapore’s gradual reopening, the continued rise in vaccination rates, and the gradual easing of border restrictions, among other factors.
MTI has a 2022 GDP growth outlook of between 3% to 5%.
UOB’s Gan is projecting a 2022 GDP growth rate of 3.5% for 2022, “Despite the relatively high base data seen in 2021, Singapore’s economy is expected to stay underpinned by the favourable export and manufacturing sectors. This is especially due to the expected recovery for Singapore’s key trading partners as they bolster their vaccination efforts into 2022,” he notes.
DBS senior economist Seah also has a 3.5% growth projection and opines that despite the slower pace vis-a-vis 2021, the quality of growth will improve, with Singapore’s recovery becoming more broad-based.
Sung Eun Jung, senior economist at Oxford Economics, takes a more cautious stance, despite her “robust” growth forecast of 3.8% for 2022. In a Jan 3 note, she highlights “significant downside risks” facing her growth outlook, including delays in private consumption recovery due to the Omicron variant.
“With the pandemic situation worsening globally, the tourism sector will also take longer to recoup its pandemic loss. In addition, the planned GST hike in 2022 budget will add to current price pressures, dampening the boost to consumption from pent-up demand,” she writes.
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Maybank’s Chua and Lee have kept their 2022 GDP growth forecast at 3.8%. “We expect the economic reopening to continue in 1Q2022 as hospitalizations decline and more people receive booster shots,” they comment.
The analysts also anticipate the Monetary Authority of Singapore to tighten monetary policy again in April, in tandem with the US Federal Reserve which they view will raise its policy rate to between 0.75% to 1% in 2022. “We raise our three-month Singapore Interbank Offered Rate forecast to 0.98% in 2022 (from 0.62%) and 1.52% in 2023 (from 1.1%),” they state.
Meanwhile, Citi sees upside risks to its 4% GDP growth forecast for 2022, with risks tilted to higher inflation ahead of a potential hike in GST by two percentage points in 2022.
See: PM Lee signals new GST hike details to come in Budget 2022
Similar to Maybank, Citi’s Kit sees a possible further tightening in monetary policy by MAS in 2022. “Given the upside inflation surprises even before the GST hike, we see 50 - 100 basis points slope steepening in April,” he writes.
He also notes that further tightening in October is also possible. “With upside risks to inflation, a more aggressive tightening path than we expect cannot be ruled out,” he stresses.
RHB has also retained its 2022 growth forecast of 4%. "We maintain our view that growth in the external oriented sectors and improvements in domestic demand will continue to support the economy," the Singapore research team states.
"However, we remain cognisant of potential hiccups to recovery for 2022, in certain sectors such as the tourism-oriented sectors, as risks from new infection strains may still arise leading to heighten restrictions both domestically and internationally," the team adds.
Photo: Bloomberg
