Singapore’s economy is expected to continue on its expansion path in the coming quarters as movement restrictions ease in line with the government’s reopening plans.
The Monetary Authority of Singapore (MAS) estimates the republic’s Gross Domestic Product (GDP) to come in at 6% to 7% in 2021, or the upper end of the official forecast range for this year.
It also expects a “slower, but still above-trend pace” in 2022, barring downside risks from global economic developments and further mutations of the virus that may be resistant to the existing vaccines.
The optimism follows Singapore’s strategy of treating the virus as endemic and thus gradually relaxing the current movement restrictions in the next few months, the central bank highlighted in its half-yearly macroeconomic review on Oct 28.
“The domestic-oriented and travel-related clusters should see a gradual improvement as the economy progressively reopens, while growth in the trade-related and modern services sectors will be supported by the recovery in the global economy,” MAS explains.
However, the growth outcomes for different sectors are seemingly disparate.
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The recovery of consumer-facing industries – such as food & beverage, retail and land transport - is slated to be “held back” in early 4Q2021 due to the high Covid-19 cases in the community and the resultant cap on social gatherings to two persons.
While online transactions have been supporting the sector, MAS says that consumer confidence is likely to pick up when there is more evidence that the rise in infections is not resulting in higher intensive care unit admissions.
“A more extensive reopening of the economy towards the end of this year should improve footfall for retail businesses and eateries,” it adds.
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Meanwhile, the recovery of the travel-related sector – one of the worst-hit the pandemic – appears protracted.
“Travel demand is not expected to return quickly or substantially in the near term,” MAS flags.
This comes even as Singapore has eased some border restrictions through its Vaccinated Travel Lane (VTL) arrangement that allows quarantine-free travel.
As of Oct 25, some 7,000 Vaccinated Travel Passes had been issued to short-term visitors, making up less than 1% of monthly visitor arrivals pre-Covid.
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To this end, the central bank stresses that a stronger rebound in the sector’s performance may only happen over the course of 2022 when border barriers are removed more substantially.
Over at the construction sector – which came in at an all-time low last year- recovery is slated to be hampered by elevated raw material costs and manpower shortages for the rest of the year.
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As such the MAS notes that the easing of some supply-side constraints should support higher levels of construction activity given the strong pipeline of contracts awarded for projects, beyond 2021.
These projects include the construction of major public infrastructure works, public housing projects, healthcare facilities, and redevelopment of past en-bloc sites
The outlook manufacturing sector – which has been a driver of Singapore’s economy in the past year – is bright, for it is expected to continue growing this year as the upswing in the global technology cycle drives demand for electronics production.
In this vein, business research firm Gartner has upgraded its forecast for global semiconductor revenue growth to 26.9% for this year and is projecting growth of 8.9% for 2022.
Going forward, MAS says that a pickup in the domestic and regional economic activity in the upcoming quarters should benefit the banks and insurance segments.
“The former should be supported by more credit and fee-based banking services, while the latter is expected to see higher demand for general insurance from firms as they boost operations,” it explains.
Such trends are already apparent with data showing that total card payments have rebounded strongly after declining in H12020 alongside the implementation of circuit breaker measures.
In the same period, ATM transactions contracted and remained flat subsequently, which suggest a shift in consumer preferences for cashless payment modes that could become permanent, the central bank observes.
The information & communications sector is similarly expected to grow amid demand from tech-related capex.
A case in point is, the government’s $3.8 billion in ICT investments made in June, a 10% increase from a year before. The bulk of the projected spending will go towards improving cloud infrastructure and developing AI applications for the public sector.
Stronger labour market
With things looking up in Singapore’s economy, the labour market is set to rise in tandem with a pickup in resident and non-resident workers.
This spells good news, for the total employment stood at 95% of its pre-Covid level in 2Q2021 with most sectors seeing “outturns”.
Calling the weakness in demand for resident workers in 2Q2021 and 3Q2021 “temporary”, MAS is expecting resident employment to “expand at a firm pace into 2022 [while slowing] from this year as resident labour slack is further absorbed.”
Looking ahead, the central bank notes that a tighter labour market and a recovery in business and worker confidence will bring a strengthening in wage growth next year.
A further push in wages will also come from government policies aimed at improving the wage outcomes of lower-paid Singaporeans.
Turning to inflation, both the core and headline gauges edged up in 3Q2021 following a sharp surge in electricity and gas costs due to the rise in global oil prices to above pre-pandemic levels.
Brent crude oil prices rose from US$61 per barrel in 1Q2021 to US$69 per barrel in 2Q2021 or 9% of the levels it was at in 4Q2019 before the pandemic.
Meanwhile, inflation levels were also pushed up by higher prices of imported food.
MAS suggests that a rebound in prices from their lows in 2020, will fade. “However, rising imported and labour costs will lead to a strengthening of underlying inflation in the Singapore economy,” it adds.
To this end, the central bank is expecting core inflation to average between 0% and 1% this year while headline inflation is forecast to come in at 2%.
In line with this, the central bank tightened its monetary policy stance by raising “slightly the slope” of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band up from a flat or 0% slope previously.
At the same time, the slope of the band – which indicates its rate of appreciation – and mid-point will be left unchanged. With this, the central bank hopes to “ensure price stability over the medium term while recognising the risks to the economic recovery”.
Photo: Bloomberg
