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Singapore GDP forecast to contract 6-6.5% for 2020; rebound expected next year: MTI

singapore gdp.jpg
The economy shrank by 5.8 per cent year on year in the third quarter, beating an earlier estimate of a 7 per cent decline.

SINGAPORE'S official economic outlook has been cut again, as the gross domestic product (GDP) print for the third quarter was revised upwards by less than expected.

The Ministry of Trade and Industry (MTI) on Monday narrowed its forecast contraction to between 6 per cent and 6.5 per cent in 2020, from 5 per cent to 7 per cent before.

But the GDP is projected to grow by 4 per cent to 6 per cent in 2021, as the world's major economies recover from the economic disruption of the Covid-19 pandemic and post a rebound from this year's low base.

The economy shrank by 5.8 per cent year on year in the third quarter, beating an earlier estimate of a 7 per cent decline, on better-than-expected factory output in September. The latest print takes the contraction for the first nine months to 6.5 per cent.

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Citing the improved growth outlook and likely easing of pandemic-related curbs, MTI said that "the Singapore economy is projected to return to growth in 2021".

But it added that the looming recovery should be gradual "and will depend to a large extent on how the global economy performs and whether Singapore is able to continue to keep the domestic Covid-19 situation under control".

With Singapore in the second phase of its three-stage reopening, the economy shrank by a more gradual 5.8 per cent year on year in the July-to-September period, moderating from the 13.3 per cent plunge seen in the three months prior.

This was slightly below the median 5.5 per cent decline tipped by private economists - who were cheered by double-digit industrial production growth in September - as services and construction fared more poorly than flash data had indicated.

To be sure, the manufacturing sector did not disappoint. It expanded by 10 per cent, up from advance estimates of 2 per cent growth and reversing an earlier 0.8 per cent dip.

Strong global demand for semiconductors and semiconductor equipment, as well as higher output in biomedical manufacturing, made up for the falls in transport engineering and general manufacturing production.

All the same, service industries shrank by 8.4 per cent year on year, slightly worse than the preliminary figure of 8 per cent contraction but a pick-up from the 13.4 per cent drop in the second quarter.

Declines ranged from 4.3 per cent in wholesale and retail trade to 29.6 per cent in the transport and storage industry, even as finance and insurance grew by 3.2 per cent and information and communications services by 2 per cent.

The plunge in construction was revised to 46.6 per cent in the third quarter, down from 44.7 per cent in flash data, after plummeting 60 per cent in the second quarter.

Yong Yik Wei, director of MTI's economics division, attributed the under-forecast construction performance to industry challenges in implementing safe-management measures at worksites.

Meanwhile, the services showing came on a weaker-than-expected performance by real estate-related business services. Ms Yong told a briefing: “The rentals of commercial space have been weaker than we thought.

“And also, for the professional services segments which are related to construction - so your architecture firms and so on and so forth - (they) also did a bit poorer than expected.”

DBS senior economist Irvin Seah said construction should improve on the backlog and pipeline of residential and infrastructure projects, even as factories - especially electronics and biomedical - will spearhead the recovery.

But services growth will be patchier, and hospitality and aviation will continue to struggle as the pandemic restricts travel, he noted.

On a seasonally-adjusted, quarter-on-quarter basis, Singapore's GDP added 9.2 per cent in the third quarter, after slipping 13.2 per cent in the second quarter.

Selena Ling, head of treasury research and treasury at OCBC, called the narrowed forecast range a surprise and a sign of policymaking caution, “even though I did expect a Q4 wobble after a V-shaped rebound in Q3”.

Besides the hit to trade-related industries from weak external demand, consumer-facing services could “potentially offset some of the uptick in manufacturing” on subdued demand at home as well, she said.

But "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," Permanent Secretary for Trade and Industry Gabriel Lim said.

He also noted uncertainty over the global trajectory of the pandemic as well as the vaccine roll-out, which he said will affect the Singapore economy.

"Domestically, our economic recovery will also depend on whether we are able to keep the Covid-19 situation under control. MTI will continue to monitor developments closely," Mr Lim added.

Some market watchers were more optimistic about uplift in the fourth quarter.

Economist Brian Tan of Barclays pegged a full-year contraction of 5.5 per cent in 2020 “as the economy continues to recover, helped by the continued containment of the Covid-19 outbreak, including in the foreign worker dormitories”.

Meanwhile, Maybank Kim Eng analysts held to a projection of a 5.7 per cent slide in 2020, but raised their 2021 growth outlook from 4 per cent to 4.5 per cent.

“The recent vaccine breakthrough will help contain the spread and ease lockdowns across the world, especially in the economies struggling to flatten the curve,” Chua Hak Bin and Lee Ju Ye wrote in a research note.

“This will help revive Singapore’s services exports and travel & hospitality sectors in 2021. The labour market is starting to turn around, which could support consumer-facing services such as retail and F&B services.”

UOB economist Barnabas Gan said: “Despite seeing three consecutive quarters of year-on-year contraction, the latest GDP print suggests that Singapore’s economy will probably see better days ahead in 2021.”

On the other hand, Citi analysts Kit Wei Zheng and Ang Kai Wei suggested that the reopening in the construction sector could be offset by “some near-term pullback in consumer spending” in Singapore, a slower pace of semiconductor growth, and waning consumer demand in the Europe and United States markets.

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

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