Despite advanced Singapore 2Q2021 GDP estimates coming in below consensus figures, economists remain mostly upbeat and anticipate a stronger performance in the coming months.
According to data released by the Ministry of Trade and Industry (MTI) on July 14, Singapore’s GDP grew 14.3% y-o-y in the 2Q2021, compared to consensus estimates of 14.8%.
The strong growth was largely due to the low base in the 2Q2020 when GDP fell by 13.3% due to the Circuit Breaker (CB) measures implemented from April 7 to June 1, 2020.
See also: Singapore’s GDP expands 14.3% y-o-y in 2Q2021
However, on a q-o-q seasonally-adjusted basis, the Singapore economy contracted by 2% in the 2Q2021, a reversal from the 3.1% growth in the preceding quarter, the first decline since the 2Q2020. Economists attribute the contraction to the drag from the implementation of Phase Two and Phase Three (Heightened Alert) measures.
Nonetheless, in absolute terms, GDP in the 2Q2021 remained 0.9% below its pre-pandemic level in the 2Q2019.
MTI has maintained the official GDP growth forecast for 2021 between 4-6% and highlighted that a revision to its full-year growth outlook will be made in August.
Noting that the advanced estimates are based on data from the first two months of the quarter during which tiger restrictions were in place, economists view the potential for the final 2Q2021 GDP outcome to be revised upwards. “We thus expect a modest upwards revision in the final 2Q21 GDP outcome once June data is incorporated,” says JP Morgan’s Sin Beng Ong.
UOB economist Barnabas Gan has upgraded his full-year GDP growth forecast to 6.5% from 5.5% previously, citing a “suprisingly strong performance” in the 2Q2021 and a “rosier economic prognosis ahead”.
Supporting his sanguine outlook is Singapore’s manufacturing growth of 18.5% for the quarter, in-line with his expectations. In addition, he sees an “encouraging” recovery in the construction and services sectors, which grew 98.8% and 9.8% y-o-y respectively.
“For the full-year, we maintain our manufacturing forecast at 8%, and upgrade our services and construction growth outlook to 5.% (from 4.7%) and 17.7% (from 1.1%) respectively,” he says.
Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye share a similarly bullish outlook, raising their 2021 GDP growth forecast to 6.8% from 6.2% previously. Their revised forecast reflects the stronger manufacturing performance, as well as their expectations that social distancing measures will be further relaxed once Singapore’s vaccination rate reaches 50% in August.
Fitch Solutions is another research desk that raised its 2021 GDP growth forecast, bumping it up to 6.1% from 5.5% previously. "Overall, our revision reflects our view that the economy will be on a much stronger footing in 2H2021, offsetting the impact of stricter measures imposed in 2Q2021 to control a resurgence in Covid-19 infections," the team writes in a July 14 note.
Oxford Economics economist Sung Eun Jung is also optimistic about the vaccination pace, anticipating that 70% of the population will be fully vaccinated by August. While Sung has currently kept her 6.4% full-year estimate unchanged, she “will look to nudge up” her forecast given the stronger-than-expected 2Q2021 numbers.
Meanwhile, JP Morgan’s Sin Beng Ong has kept his GDP growth forecast unchanged at 7%, though he remains cautious on cross-border travel restrictions, which will have knock-on effects on industries reliant on foreign workers.
OCBC’s Selena Ling also believes full-year 2021 GDP growth will come in close to 7% y-o-y, in view of the 7.4% growth recorded in the 1H2021. “With the global and domestic economic recovery likely to pick up speed with the ramp-up in vaccination rates, Singapore’s 2H2021 GDP growth may come in around 6.7% y-o-y, barring further Covid-related uncertainties that could warrant another tightening from the Phase 3 (Heightened Alert) conditions,” she says.
CGS-CIMB economists Terence Lee and Michelle Chia have kept their GDP growth forecast at 6.6% y-o-y given the strong y-o-y performance for 2Q2021 and daily vaccination rates nearly doubling in recent weeks. "Despite the potential risk of virus variants and a potentially laggard recovery amongst trading partners, we reiterate our recently upward revised GDP growth forecast of 6.6% for 2021," they say. Lee and Chia also believe the Monetary Authority of Singapore (MAS) will implement a "slight upward adjustment" to Singapore Dollar Nominal Effective Exchange Rate (S$NEER) in April 2022.
RHB Group Research had a more cautious response and expect 3Q2021 GDP growth to moderate as the low base effect from 2020 dissipates. The Singapore research team also note that despite the significant y-o-y growth, the value-added for the construction and services sectors remain below pre-pandemic level.
Nonetheless, the team says the risks to their 2021 GDP growth forecast of 5.8% are "tilted on the upside" given the stronger than expected 2Q2021 advance GDP estimates.
Photo: Bloomberg
