While Singaporeans brace themselves for an imminent hike in the goods and services tax (GST), the government has announced that the economy saw a rebound in 2021. The republic’s economic growth for 4Q2021 ended December 2021 expanded by 6.1% y-o-y, slower than the 7.5% in the preceding quarter, according to the Ministry of Trade and Industry (MTI) on Feb 17. Even so, full-year growth for 2021 came in at 7.6%, up from the 7.1% flagged in the advanced estimates released early this year. The government has also revised its 2020 GDP report to a contraction of 4.1% from a drop of 5.4% announced previously.
In tandem with the stronger economy, median household income has increased by 3.6% in nominal terms (or before adjusting for inflation), to $9,520 per month in 2021, from $9,189 in 2020. After taking inflation into account, this works out to a 1.5% increase in real terms.
This surpasses pre-pandemic levels and comes after a dip in 2020 for the first time in a decade. In comparison, monthly total household income stood at $9,425 in 2019 before the Covid-19 pandemic caused tremors to both the local and global economy.
In this time, businesses seemingly got a much-needed injection of support. Some 22,100 enterprises here had leveraged on the support of government agency Enterprise Singapore (ESG) in 2021 to embark on projects to build new business capabilities, innovate and expand overseas. When fully realised, these efforts are expected to generate some $17.9 billion in value-add and create 23,000 skilled jobs for the Singapore economy.
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Stronger economy
The stronger economy, and by extension, rise in median household income, came even as the pandemic raged on and resulted in supply bottlenecks at ports and a tightening of purse strings by households. Overall, gross domestic product (GDP) growth in 2021 was driven mainly by the manufacturing, finance and insurance and wholesale trade sectors, notes Gabriel Lim, MTI’s permanent secretary.
The manufacturing sector registered a 13.2% growth in 2021, accelerating from its 7.5% expansion in 2020. Output across all clusters within this sector rose, with precision engineering, electronics and transport engineering recording the largest output increases.
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Meanwhile, the construction sector — which was one of the hardest hit in 2020 — registered a sharp rebound from a contraction of 38.4% in 2020, to an expansion of 20.1% in 2021. This follows a pickup in construction works in both the public and private sectors.
The construction sector is seen to have even stronger growth this year, with demand projected at between $27 billion and $32 billion. Of this, 60%, or between $16 billion and $19 billion, is said to come from the public sector, the Building and Construction Authority (BCA) announced on Jan 26.
Similarly, the services-producing industries were up by 5.6% in 2021, reversing from the 5.1% contraction seen in the year before. MTI notes that all services sectors posted expansions with the exception of the administrative & support services sector.
In this time, Singapore’s non-oil domestic exports (NODX) expanded by 12.1% y-o-y, extending from the 4.3% y-o-y growth seen in the year before. A key contributor to the rise was a 10.9% y-o-y expansion in non-electronic exports, notes ESG, the agency under MTI that tracks these numbers.
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Different schools of thought
Singapore’s strong economic growth for 2021 saw mixed responses from market watchers. One school of thought is that the increase in 2021 follows the low base of 2020, and so, growth this year will not be as strong.
However, others believe that there is still plenty of growth momentum this year.
MTI estimates GDP growth for 2022 to be between 3% and 5%, despite a slight deterioration in the outlook for external demand. Many economies have tightened measures over the past few months, amid a surge in Covid-19 cases caused by the highly transmissible Omicron variant.
As such, global supply bottlenecks are expected to persist throughout the first half of the year, which could in turn constrain industrial production and GDP growth in some external economies in the near term. These challenges, coupled with rising energy prices due to geopolitical tensions, have also exacerbated global inflationary pressures, observes MTI’s Lim.
In the most recent reading in December 2021, Singapore’s headline inflation — the measure of the total inflation in the economy — rose to 4%, the highest level the price gauge has been at in nearly eight years. This pushed the Monetary Authority of Singapore (MAS) to strengthen the Singapore dollar in January so that rising costs of imports can be reined in somewhat. It is doing so by raising the rate of the appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) slightly in an out-of-cycle move, while keeping its width and level unchanged.
Still, Lim says that downside risks to Singapore’s economic growth have risen, with the trajectory of the pandemic remaining uncertain amid threats of more virulent strains as well as the possibility of the ongoing global supply disruptions being more protracted than expected.
Meanwhile, Lim warns that energy prices could increase further amid supply concerns arising from escalating geopolitical tensions involving Russia and Ukraine, as well in the Middle East. Unpredictable weather conditions will not help either.
On a domestic front, he expects consumer-facing sectors to enjoy much-needed reprieve from the easing of Covid-19 restrictions from Feb 25. Air travel and visitor arrivals are also expected to improve with the gradual loosening of travel restrictions and an expansion of vaccinated travel lanes (VTLs) to more countries.
At present, Singapore has 24 VTLs, with the recently added routes being to Hong Kong, Qatar, Saudi Arabia and the United Arab Emirates (UAE). The easing of Singapore’s borders spells growth prospects for outward-oriented sectors such as manufacturing and wholesale trade, says Lim.
The easing of borders brings another opportunity: the ability for firms to ramp up their internationalisation drive this year. ESG wants to continue its key task of linking companies with overseas opportunities. For one, it is urging Singapore companies to look beyond the big cities of the target markets. It will also help companies enter new markets depending on the opportunities available in each specific market. For instance, Latin America and Africa present opportunities for consumer-related, trade, and digital and infrastructure solutions markets, while the US and Europe offer possibilities for the green economy, logistics, and supply chain resilience markets.
From the perspective of OCBC Bank chief economist Selena Ling, the road ahead for Singapore “definitely looks brighter”, even though the retention of 2022 forecast numbers — as compared to more bullish forecasts — have not shifted the needle for a “return to steady-trend growth story”.
The latest announcement of the easing of movement curbs and the resumption and expansion of VTLs “reinforce expectations” of upside risks to the bank’s 3% to 5% GDP growth forecast for this year, she adds.
Echoing Ling’s stance, United Overseas Bank (UOB) economist Barnabas Gan — who has pencilled a 3.5% growth rate this year — says that Singapore’s “overall economic prognosis remains optimistic”.
“Despite the relatively high base data seen in 2021, Singapore’s economy is expected to stay underpinned by the favourable export and manufacturing sectors,” he explains. However, Gan cautions that the recovery momentum will centre on Covid-19 as new pandemic strains, like Deltacron, inject substantial uncertainty for the year ahead.
Even as full-year growth is seemingly on the cards, Singapore will have to cross the bridge of growth momentum slowing sequentially in the first half of the year, says Priyanka Kishore, who heads the India and Southeast Asia economics team at Oxford Economics. Kishore — who predicts that 2022 growth will come in at 3.5% — notes that a further monetary policy tightening as well as return to “conservative fiscal policies” could also be on the cards this year.
Speaking at a media briefing on Feb 17, Edward Robinson, chief economist at MAS, reiterates the central bank’s ongoing move to appreciate the Singapore dollar. A more expensive Singapore dollar can help dampen inflationary pressures incurred from the import of goods through this year. MAS’s policy responses at the next two scheduled reviews in April and October will remain “data-dependent”, says Robinson, leaving the wiggle room for further tightening.
Meanwhile, MTI’s chief economist Yong Yik Wei noted that the GDP forecast numbers do not take into account any possible hike in GST, since the timing of the increase has yet to be announced. The tax — which is set to rise by 2 percentage points to 9% — is expected to be touched on during the Budget 2022 speech.
Cover image: Albert Chua/The Edge Singapore
