Singapore Q1 GDP's upside surprise muted by Covid-19 resurgence, outlook to remain

A "wait-and-see" approach to Singapore's economic outlook appears to be the stance for both the Ministry of Trade and Industry (MTI) as well as private-sector economists, despite the surprisingly good showing from the first quarter.

Encouraged by improving high frequency data in Q1, several economists had - just over a month ago - said they were expecting MTI to upgrade its 2021 full-year growth outlook, which the ministry in November said would come in at 4 to 6 per cent.

The final print for Q1's gross domestic product (GDP), at 1.3 per cent year on year, would have made the case for it, since this figure has outperformed advance estimates of a 0.2 per cent growth, further surprising private-sector economists polled by Bloomberg who had expected a 0.9 per cent growth.

The manufacturing sector in particular expanded at an even faster clip in Q1 at 10.7 per cent year on year, up from 10.3 per cent in the previous quarter. While the construction sector continued to be weighed down by declines in both public and private-sector projects, Q1 saw a smaller contraction of 22.7 per cent, compared with 27.4 per cent in Q4.

But the hopeful mood had already begun shifting by end-April, as the Covid-19 pandemic took a turn for the worse in Singapore, seeded by the B1617 variant from India. This has prompted the authorities to progressively tighten restrictions, including banning dining-in.

On Tuesday, MTI permanent secretary Gabriel Lim told reporters during a virtual briefing that the ministry has decided to maintain its 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".

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Paul Kent, an economist and advisory partner at KPMG, said it may be too preliminary to put a figure to the actual shave-offs to the potential growth forecast stemming from the materialisation of these downside risks.

"That said, the pull-outs of major international events such as the World Economic Forum and Shangri-la Dialogue, among others that profile Singapore and provide an economic boost, will certainly count among the losses," Mr Kent told BT.

Meanwhile, the ministry is likely adopting a "wait-and-see" approach to see if the surge in community cases can be arrested, considering the tightened measures are fairly recent, he added.

During the briefing, Mr Lim said while it is possible for the economy to outperform the 4-6 per cent forecast range if external demand picks up more strongly than expected, there are also "significant downside risks", the most important of which is the trajectory of the Covid-19 pandemic.

But he also pointed out that the current Phase 2 (Heightened Alert) is "not quite a lockdown" and is qualitatively different from a "circuit breaker", given that many parts of the economy remain open and are "running at full steam".

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

"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.

Similarly, DBS senior economist Irvin Seah is also holding on to his 6.3 per cent outlook, as long as these tightened restrictions do not get extended beyond June 13. However, he believes a sequential pullback may be on the cards for Q2, even though year-on-year growth is likely to report a strong double-digit expansion due to the low base last year.

UOB economist Barnabas Gan is likewise maintaining his 5.5 per cent growth prediction, although he pointed out that the construction and marine and process sectors, which are heavily reliant on foreign workers, may "remain in the doldrums" due to continuing border restrictions.

The foreign manpower crunch and its knock-on effects as well as the tightened restrictions is enough to have JP Morgan's chief Asean economist Ong Sin Beng downgrade his full-year outlook from 7.8 per cent to 7 per cent.

Jamus Lim, an economist at ESSEC Business School Asia Pacific, however said he is "quietly optimistic" that Singapore could fall on the upper end of the official forecast range, barring no new restriction measures.

He said: "One more thing we could look forward to is possible benefits from growth in the rest of the world, principally China and the United States, both of which have staged impressive recoveries. While we may expect their more domestically-oriented growth to generate less spillover effects than in past cycles, their strong performances will undeniably help buoy a small, open, externally-dependent economy such as Singapore."