Singapore GDP grows 0.2% in Q1; first turnaround since Covid-19 pandemic started

SINGAPORE'S economy in the first quarter made marginal gains for the first time since the Covid-19 pandemic began and easing from three straight contractions, according to advance estimates released by the Ministry of Trade and Industry (MTI) on Wednesday.

Gross domestic product (GDP) grew 0.2 per cent year on year in Q1, reversing the 2.4 per cent contraction seen in Q4, according to the data.

The pandemic hit in the middle of Q1 last year, and the economy stayed flat in that quarter.

Last year, the economy shrank 5.4 per cent on the whole, while the official full-year forecast for 2021 is an expansion of 4 to 6 per cent.

On a quarter-on-quarter seasonally-adjusted basis, the economy expanded 2 per cent in Q1, extending Q4's 3.8 per cent growth.

The positive growth was a pleasant surprise to private-sector economists, who had anticipated a 0.5 per cent contraction, according to a Bloomberg poll.

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Brian Tan, regional economist at Barclays, said he is raising his 2021 GDP growth forecast to 7.5 per cent from 6 per cent since Q1 data had exceeded his expectations.

"With the Covid-19 outbreak still under control, the economy remains on the mend. That said, our 7.5 per cent growth forecast partly reflects favourable base effects following last year’s contraction of 5.4 per cent and is still unlikely to close the negative output gap," said Mr Tan.

OCBC chief economist Selena Ling said the GDP rebound in Q2 is likely to be more dramatic.

"Going ahead, we expect to see an outsized GDP rebound of around 15 per cent year on year (yoy) due mainly to the low base last year during the 'circuit-breaker' period, with manufacturing, services and construction sectors all likely to register double-digit yoy growth as well," said Ms Ling.

"But base effects will fade and H2 2021 growth will come back down to earth," she said, adding that she is keeping her GDP growth forecast at 6 per cent year on year.

Making the most gains in Q1 was the manufacturing sector, which grew 7.5 per cent, continuing the momentum from the previous quarter where it saw a 10.3 per cent jump.

This was supported by expansions in the electronics, precision engineering, chemicals and biomedical manufacturing clusters, which outweighed output declines in the transport engineering and general manufacturing clusters, MTI said.

The construction sector shrank by 20.2 per cent in Q1, easing from Q4's 27.4 per cent decline.

MTI said the improved performance came on the back of a pickup in public and private sector construction activities in Q1 as compared to the previous quarter.

In the services sector, the information and communications, finance and insurance and professional services sectors collectively grew by 3.7 per cent in Q1, outstripping the 1.4 per cent expansion in the previous quarter.

Although the first two sectors saw growth, the professional services sector shrank, due in part to weak economic activity in the region and sluggish domestic construction activity that weighed on the architectural and engineering segment of the sector, MTI said.

Meanwhile, the wholesale and retail trade and transportation and storage sectors shrank by 4.1 per cent in the first quarter, moderating from the 6.4 per cent contraction in the previous quarter.

This was due to continued weakness in the transportation and storage sector, caused by the ongoing impact of the Covid-19 pandemic on air, land and sea transport.

The remaining group of services sectors shrank 3.9 per cent, easing from the 9.9 per cent decline seen in Q4.

All sectors within the group, except for accommodation, contracted as activities in these sectors continued to be weighed down by constraints arising from the implementation of safe management measures, MTI said.