Singapore GDP shrinks 5.8% in 2020; contraction slowed in Q4

SINGAPORE'S economic contraction slowed down in the fourth quarter of 2020, compared to the previous one, with full-year contraction coming in at 5.8 per cent, according to advance estimates from the Ministry of Trade and Industry (MTI) on Monday.

Gross domestic product (GDP) shrank 3.8 per cent in Q4, an improvement from the 5.6 per cent contraction seen in the previous quarter. This turned out to be better than private-sector economists' expectations of a 4.7 per cent decline, according to a Bloomberg poll.

On a quarter-on-quarter seasonally-adjusted basis however, the economy grew 2.1 per cent, slowing down from the 9.5 per cent expansion recorded in Q3.

This brings Singapore's 2020 full-year GDP contraction to 5.8 per cent, which is slightly better than the official contraction forecast of 6 to 6.5 per cent.

Similar to Q3, growth was mostly bolstered by the manufacturing sector, which expanded 9.5 per cent in Q4, leading to an overall 7.1 per cent growth for the full year. This was supported primarily by output expansions in electronics, biomedical manufacturing and precision engineering clusters, and these outweighed output declines in the transport engineering and general manufacturing clusters, MTI said.

UOB economist Barnabas Gan said: "Despite seeing a full-year contraction in 2020, the Singapore economy had continued to improve since the trough in Q2 2020. 

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"We remain encouraged by the continued manufacturing expansions in November 2020, where industrial production rose 17.9 per cent year on year then, and beating market expectations for a 14.1 per cent year on year."

Among the services industries, the information and communications, finance and insurance and professional services sector on the whole was the only one to record growth in Q4 since the "circuit breaker" occurred in Q2.

Looking ahead, Citi economists said recovery is likely to be gradual and uneven.

"Notwithstanding the shift to Phase 3 of reopening, further recovery in domestic demand would likely be constrained by the continued weakness in tourism, and large labour market slack. We also keep a close eye on possible renewed infection waves in the community, which could halt or even reverse the reopening process," Citi economists Kit Wei Zheng and Ang Kai Wei said.

They added that business sentiment remains downbeat, according to official surveys, while external final demand from the US and Europe could face downside risks from new waves of Covid-19 infection.

However, this could pick up later on in the year, with vaccines more widely available. With this, they are expecting 2021 full-year GDP to expand by 5 per cent, placing their prediction near the middle of the official forecast of 4 to 6 per cent.

Brian Tan, regional economist for Barclays, said he is revising his GDP growth forecast for 2021 from 4 to 4.8 per cent.

"While the recent relaxation of social distancing measures does not significantly alter the economic landscape, the swift procurement and distribution of Covid-19 vaccines is an encouraging positive surprise," said Mr Tan.

Maybank Kim Eng economists are more pessimistic, expecting a 4.5 per cent growth in 2021, given that the easing of border controls is at "snail's pace".

"Recovery in 2021 will be conditional on services, which remains sluggish, while manufacturing already surged strongly in 2020," Maybank economists Chua Hak Bin and Lee Ju Ye said.