Singapore's 2021 growth forecast upgraded to between 6-7%

SINGAPORE'S official growth forecast for 2021 has been upgraded to a range of between 6 and 7 per cent, up from the earlier forecast range of 4 to 6 per cent, the Ministry of Trade and Industry (MTI) said on Wednesday.

Gross domestic product (GDP) grew 14.7 per cent year on year in the second quarter, better than preliminary estimates of 14.3 per cent, and improving upon Q1's 1.5 per cent growth, upon a low base in the year-ago period.

In absolute terms, however, GDP remained 0.6 per cent below the pre-pandemic level in the second quarter of 2019.

On a quarter-on-quarter seasonally-adjusted basis, Singapore's economy contracted 1.8 per cent in Q2, reversing from the growth of 3.3 per cent in Q1.

"Taking into account the GDP performance in the first quarter, the Singapore economy expanded by a better-than-expected 7.7 per cent on a year-on-year basis in the first half of the year," said permanent secretary for trade and industry Gabriel Lim.

In Q2, manufacturing grew 17.7 per cent year on year, extending the previous quarter's 11.4 per cent growth. All clusters saw output rise, with the largest increases in transport engineering and precision engineering.

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On a quarter-on-quarter seasonally-adjusted basis, however, the manufacturing sector shrank 2.5 per cent, pulling back from Q1's 11.5 per cent growth.

Construction sector output more than doubled on a low base, as most domestic construction activities had been suspended in the "circuit-breaker" period a year ago. In absolute terms, the sector's value-added remained 29 per cent below the Q2 2019 pre-pandemic level. On a quarterly basis, the sector contracted 7.6 per cent, reversing from Q1's 4.3 per cent growth.

The low base effect from the "circuit breaker" also allowed for strong growth in the sectors of retail trade (50.7 per cent), food and beverage services (36.7 per cent), real estate (25.8 per cent), and transportation and storage (20.9 per cent).

Most other sectors saw growth as well: accommodation (13.2 per cent), information and communications (9.6 per cent), professional services (9.4 per cent), finance and insurance (9.1 per cent), wholesale trade (2.9 per cent), and "other services industries" (15.8 per cent).

The one exception was administrative and support services, which contracted 1.3 per cent year on year, though this was a moderation from Q1's 15.1 per cent contraction.

The upgraded full-year forecast takes into account the better-than-expected performance of the Singapore economy in the first half of the year, as well as the latest external and domestic economic developments, said the MTI.

On balance, the recovery in external demand for Singapore for the rest of the year remains largely on track, said MTI, noting that vaccination rates have picked up in the United States and the Eurozone, while South-east Asian growth is likely to be slower than earlier projected due to tightened pandemic curbs.

"Barring a major setback in the global economy, the Singapore economy is expected to continue to see a gradual recovery in the second half of the year, supported in large part by outward-oriented sectors," it said.

The progressive easing of domestic and border restrictions will also help to support the recovery of consumer-facing sectors, and alleviate labour shortages in sectors that are reliant on migrant workers.

However, the MTI noted that Singapore's recovery is still expected to remain uneven. Growth prospects remain strong for outward-oriented sectors such as manufacturing and wholesale trade, as well as finance and insurance, and information and communications. But aviation and tourism-related sectors are projected to recover more slowly than earlier expected.

Consumer-facing sectors should recover as domestic restrictions are eased, but are not expected to return to pre-Covid levels by the end of the year, partly due to the subdued tourism outlook.

And while the construction and marine and offshore engineering sectors are projected to see some recovery from last year's low base, labour shortages are likely to continue weighing on this. While border restrictions may ease and alleviate this, the output of those sectors is expected to remain "substantially below pre-Covid levels" even at year-end.

Replying to questions from the media, Monetary Authority of Singapore chief economist Edward Robinson said that the current monetary policy stance "remains appropriate for now", with the upgraded growth forecast range continuing to be consistent with the current policy stance.

He also confirmed that the Singapore dollar nominal effective exchange rate is within the policy band, and its average level since April has been consistent with the policy stance.