Singapore Q1 GDP grows 1.3%, but outlook has become more uncertain: MTI

SINGAPORE'S first-quarter economic growth exceeded earlier estimates by more than one percentage point, but contrary to expectations, the Ministry of Trade and Industry (MTI) will not be upgrading its full-year outlook in view of "heightened uncertainties" associated with the Covid-19 pandemic.

Gross domestic product (GDP) grew 1.3 per cent year on year in Q1, outperforming advance estimates of a 0.2 per cent growth, according to MTI data released on Tuesday morning.

The final print surprised private-sector economists who were already anticipating a 0.9 per cent growth in Q1, according to a Reuters poll.

Reversing Q4's 2.4 per cent contraction, Q1's performance is the first turnaround for the economy since the pandemic hit in Q1 last year.

On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 3.1 per cent, extending the 3.8 per cent expansion in Q4.

Describing Singapore's Q1 performance as "stronger than expected", MTI permanent secretary Gabriel Lim told reporters during a virtual briefing that the key sectors that supported GDP growth were manufacturing, finance and insurance and wholesale trade.

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Making the most gains was the manufacturing sector, with a 10.7 per cent year-on-year expansion, even faster than Q4's 10.3 per cent growth.

At the same time, sectors that were consumer-facing or related to tourism and aviation, as well as construction, continued to shrink.

The construction sector continued to be weighed down by declines in both public and private-sector construction works but saw an improvement with a 22.7 per cent year-on-year contraction, up from a 27.4 per cent contraction in Q4.

Despite the good showing, Mr Lim said MTI has decided to maintain its 2021 full-year growth forecast at 4 to 6 per cent for now, owing to "the larger-than-usual degree of uncertainty over the course of the pandemic globally as well as our domestic situation".

"While it is possible that the Singapore economy will outperform the '4 to 6 per cent' growth forecast for 2021 if external demand picks up more strongly than expected, there are also significant downside risks. The most important is the trajectory of the Covid-19 pandemic," said Mr Lim.

Singapore is now battling a new wave of Covid-19 infections driven largely by the B1617 variant from India. Alarmed by the sudden increase in cases and active clusters, the authorities have banned dining-in and tightened restrictions on social gatherings, among other measures until June 13.

This latest resurgence comes weeks after economists, encouraged by improving economic indicators in Q1, said they were expecting MTI to upgrade its full-year growth outlook.

The Economic Survey of Singapore in February also pointed to improving external economic environment, largely due to upgrades in the growth outlook for advanced economies like the United States.

However, the Republic's recent restrictions and border controls are likely to lead to a pace of recovery that is "more uneven than earlier expected", Mr Lim said.

While outward-oriented sectors such as manufacturing and wholesale trade are expected to benefit from the pick-up in external demand, tourism and aviation-related sectors are likely to see a further delay in their recovery, he added.

The projected recovery in consumer-facing sectors such as retail and food and beverage services is also likely to be affected by the recently tightened measures, Mr Lim said, adding that at the same time, the construction and marine and offshore engineering sectors are expected to face severe labour shortage due to border restrictions on the entry of foreign workers from South Asia.

"It's useful to clarify that the current phase is not quite a lockdown - the official word is 'Phase 2 (Heightened Alert)'. I think we need to appreciate the fact that qualitatively, it is quite different frrom a 'circuit breaker'," said Mr Lim, referring to Singapore's partial lockdown from April 7 to June 1 last year that saw the closure of non-essential businesses.

"Many, many more parts of the economy are open, in fact running at full steam - if you look at manufacturing for example, the plants are running and business is good, so are the orders at a pipeline," he added, noting that consumer-facing sectors are no doubt being affected.

It is for this reason that the ministry believes its current forecast is appropriate, he said.

Noting that the tightened measures have "put a dampener" on recovery hopes for consumer-facing and hospitality-related industries, OCBC chief economist Selena Ling said it is an "icing on the cake" that MTI still considers it possible for full-year growth to outperform its forecast range despite the current setback.

"The key question is whether the Covid-19 situation and tightening measures get prolonged into Q3, both for the region and Singapore, as well as whether the manufacturing sector continues to hold up," said Ms Ling, adding that she is keeping her growth forecast to 6 per cent.

DBS senior economist Irvin Seah said while the latest set of figures has affirmed that recovery is "on track", the tightened restrictions are likely to put a dent on Q2 performance, which means "a sequential pullback is on the cards".

Although Q2 is likely to register a decline in quarter-on-quarter growth, the impact would be partially offset by the stronger-than-expected performance in Q1, he added.

"Unless the P2HA period gets extended significantly or new stiffer measures are introduced, we are maintaining our existing growth forecast of 6.3 per cent for 2021," said Mr Seah.

JPMorgan's chief Asean economist Ong Sin Beng is however downgrading his full-year outlook from 7.8 per cent to 7 per cent.

"The revisions are due to the tightening of stringency measures following a rise in Covid-19 cases, with its impact on the non-tradeable sectors even as resilience in the manufacturing sector remains," said Mr Ong.

While the tightened restrictions are expected to be relaxed in mid-June, he said cross-border travel restrictions, especially for foreign migrant workers, are expected to remain stringent, and this would have knock-on effects on industries, such as construction, that are reliant on foreign workers.