Sharp rebound in 2021 won't take economy to pre-Covid levels: MTI

Singapore

THE Singapore economy is tipped to rebound sharply next year, on the low base from the ongoing recession.

But even with Covid-19 vaccines on the horizon, politicians and policymakers here have quashed hopes of a miracle cure, as virus-related global uncertainty still haunts the recovery.

While gross domestic product (GDP) is forecast to grow by 4 per cent to 6 per cent year on year in 2021, it will still be weaker in dollar terms than before the novel coronavirus hit.

That's even as the Ministry of Trade and Industry (MTI) on Monday trimmed this year's forecast contraction to between 6 per cent and 6.5 per cent, from 5 per cent to 7 per cent before. (see amendment note)

The revision assumes a year-end pick-up, as the economy shrank by 6.5 per cent in the first nine months.

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Trade and Industry Minister Chan Chun Sing warned in a briefing that vaccine development cannot be a "quick fix", as production and roll-out "will take many months, if not years".

Such caution contrasted with the private-sector optimism over recent progress in the vaccine candidates being developed by drugmakers like Pfizer, Moderna and AstraZeneca.

Barclays economist Brian Tan suggested that a near-term vaccine roll-out in developed markets will lift external demand for Singapore's "relatively resilient" exports and factory output, while Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye pointed to the potential uplift to services exports and travel and hospitality.

Yet the MTI flagged "uncertainty over how the Covid-19 situation will evolve globally in the year ahead", including in the vaccination process.

"While growth is expected to rebound from the low base this year, our economic recovery is expected to be gradual, with GDP not likely to return to pre-Covid levels until the end of 2021," said Permanent Secretary for Trade and Industry Gabriel Lim.

Standard Chartered economists Edward Lee and Jonathan Koh agreed that next year's economic activity would still be lower than the pre-Covid mark in 2019 as "the actual widespread application of a successful vaccine appears likely only in H2 2021".

Singapore's GDP shrank by 5.8 per cent year on year in the third quarter, beating official advance estimates of a 7 per cent decline, on better-than-expected factory output in September.

Said Irvin Seah, senior economist at DBS: "The growth figures in the first half of next year will be highly volatile, due to the base effects this year.

"However, growth performance will be way above potential as the recovery gains momentum in the second half of next year, assuming that vaccines will become available and global travel can safely resume."

The latest print was led by an expansion of 10 per cent in the manufacturing sector, up from advance estimates of 2 per cent growth and reversing an earlier 0.8 per cent dip.

All the same, service industries shrank by 8.4 per cent year on year in the quarter, slightly worse than the preliminary figure of 8 per cent contraction, while the plunge in construction was revised to 46.6 per cent, down from 44.7 per cent in flash data.

The construction sector, as well as travel-related and consumer-facing services, are all expected to recover year on year in 2021 yet remain below pre-Covid-19 levels, the MTI said.

Meanwhile, Citi analysts Kit Wei Zheng and Ang Kai Wei cited medical-related manufacturing exports and strong investment commitments as some bright spots for growth in 2021.

But they also suggested that the construction reopening could be offset by a pullback in domestic and external consumer demand, as well as slower semiconductor growth.

"Job market slack will remain large and likely weigh on consumer-facing sectors," they added in a flash note.

Indeed, Kenny Tan, who heads the Ministry of Manpower's manpower planning and policy division, said that labour market conditions are expected to be "somewhat challenging", with unemployment above the 3 per cent levels seen in the last five years.

Even with an economic pick-up, "we are conservative because employers themselves will be conservative".

Said Mr Tan: "Some of the employers, this year, are holding on to excess manpower, in a sense... They will use the existing manpower perhaps more intensively, rather than commit to expanding their workforce."

Still, mere days after the postponement of quarantine-free travel with virus-hit Hong Kong, Mr Chan said that Singapore has the resources and plans to reopen its borders further.

The government will allow more business travel out of Singapore and will resume "bringing in the necessary professionals and workers".

"We will also be able to progressively host more significant Mice events to maintain our position as a leading business node," Mr Chan added, referring to meetings, incentives, conferences and exhibitions.

READ MORE: Headline, core inflation down in Oct after marginal increases

Amendment note: This article has been amended for clarity.