Singapore economy still on track to grow, despite Omicron risk

SINGAPORE is still headed for positive economic growth in 2022, but the potential hit from the highly mutated new Covid-19 variant remains to be seen, economists told The Business Times, as the global spread of Omicron is expected to put the brakes on international border reopenings.

Steven Cochrane, chief Asia-Pacific economist at Moody's Analytics, said "Singapore's economy is expected to enjoy steady growth throughout 2022", with no quarterly downturns in the near-term forecast.

The Ministry of Trade and Industry (MTI) has forecast that gross domestic product (GDP) will grow by 3 per cent to 5 per cent year on year in 2022 - a forecast range that Selena Ling, chief economist at OCBC, expects to hold up, adding that it "may be a little premature to start shading down the 2022 GDP growth for now".

"The 2021 GDP growth forecasts already have 3 quarters under the belt, so even a knock to the fourth-quarter 2021 GDP growth may have minimal impact at this juncture unless it proves to be more transmissible and severe," she said.

Similarly, ANZ Asia research head Khoon Goh said "there is sufficient leeway within the MTI's forecast range... to accommodate some mild temporary disruptions if they were to occur".

And, calling the powerhouse manufacturing sector "immune at this stage of the global downturn", Charnon Boonnuch, a South-east Asia economist at Nomura, tipped GDP growth to come in at 4.6 per cent in 2022 - at the upper end of the range.

But any projected above-trend growth through the first half of 2022 would depend on Singapore avoiding a return to strict containment measures, both at the border and domestically, warned Devin Harree, South-east Asia economist at Credit Suisse.

Granted, OCBC's Ling told BT that "the dampening of business and consumer sentiments should be less severe" as Singapore now has high vaccination rates and a vaccinated travel lane (VTL) scheme in place.

On the other hand, she cited "hints that border controls may be tightened again, which may not be welcome news for the aviation and hospitality-related industries".

The discovery of Omicron in South Africa is already disrupting the ongoing border reopening efforts.

Over the weekend, Singapore halted visitor arrivals from 7 countries in Africa and postponed the upcoming launch of VTLs with Qatar, Saudi Arabia and the United Arab Emirates.

"The Omicron variant will likely be a stress test of the strategy of treating covid as endemic, not just for Singapore but increasingly other Asean economies as well," Citi analysts wrote in a note, adding that Singapore policymakers' plan "will likely be to first slow the pace of border reopening".

Similarly, DBS economists pointed to "general caution about travel restrictions and how this could impact the nascent revival of tourism" in Singapore's relatively open economy.

And Boonnuch flagged a downside risk from travel curbs in other countries, "even if Singapore stays open and maintains the existing VTL list".

Morgan Stanley analysts also warned that regional economies like Singapore - which have a strategy of living with endemic Covid-19 - risk "a rollback of reopening measures" if a spike in infections from the Omicron variant stresses healthcare systems.

"Hence, these economies are exposed to a risk of a setback in near-term growth," the Morgan Stanley analysts said in a report, referring also to Australia, Japan and South Korea.

Credit Suisse's Harree remarked: "The hit to GDP would likely be greater from stricter domestic restrictions, given its larger impact on domestic demand and that travel and tourism activity is already subdued."

Still, economic growth remains on the cards for Singapore at this stage.

Cochrane told BT that the economic impact of a fresh Covid-19 outbreak would likely be less than the most recent case surge here, as policymakers now better understand how to test for Covid-19, trace infected individuals and target movement restrictions.

Of global supply chains, he added: "Given that policymakers are better today at selective shutdowns, more manufacturing capacity will likely remain open during another wave."

The headline-grabbing question of inflation could even take a back seat, with Ling saying Omicron may be "a temporary salve" for price pressures if it cools the pace of rate hike hawkishness at major central banks such as the United States Federal Reserve.

Yet, at the end of the day, ANZ's Goh noted that "it is too early" to determine if Omicron will have a major impact on Singapore's growth outlook.

"There is still a lot that we do not know about the new variant, especially whether it is more deadly than Delta or how effective current vaccines are against it," he said.