Singapore: Recovery is on track


The Singapore economy is expected to post its first positive year-on-year growth since the pandemic.
Irvin Seah14 Apr 2021
  • Advance 1Q GDP figures came in slightly better than expected at 0.2% YoY and 2.0 QoQ sa
  • This is the first positive headline growth since the pandemic
  • Implication for our forecast – On track to meet our growth forecast of 6.3% for 2021
  • Implications for investors – Stable exchange rate policy for now
Photo credit: Unsplash


The Singapore economy is expected to post its first positive year-on-year growth since the pandemic. Advance GDP figures for 1Q21 came in at 0.2% YoY, slightly better than expected, but on track to meet our full year growth forecast of 6.3%.

In addition, the latest set of figures is also consistent with our long-held view, that the recovery momentum is slowing and normalising to a more sustainable pace as economic activities gradually resume to norm. Sequential GDP growth (QoQ sa) continued to ease, from 9.0% in 3Q20, to 3.8% in 4Q20 and now to 2.0% in 1Q21. We expect such gradual moderation in sequential growth to persist and any transient downside blip should also not be discounted due to continued uncertainties in the external environment. And this is despite the likelihood that headline YoY growth will post a spike to about 14-15% in 2Q21 due to the ultra-low base in the same quarter last year, as a result of the Circuit Breaker.

Uneven recovery across sectors

Outlook for the manufacturing sector remained buoyant, driven by clusters such as precision engineering, biomedical, chemical and in particular, electronics. There has been a resurgence in global electronics demand as global companies look to digital solutions and new technologies as the key to enable them to compete effectively in a post COVID business environment. Further adoption of the 5G networks and WiFi 6, on top of the continued proliferation of AI, IOT, EVs and introduction of new smartphone models and wearable devices will continue to drive demand for high end electronics parts and components, which will bode well for Singapore’s manufacturing sector. However, existing supply side bottleneck in the form of global shortages of semiconductor chips could pose a hindrance to achieving higher pace of expansion in this cluster in the near term.

There will be significant catching up from the construction sector. Outlook for the sector is improving as progress payments and contracts awarded are rising steadily on the back of the resumption in work activities, as well as a huge backlog of projects. The strong pipeline of residential and infrastructure projects ahead should serve as strong impetus to growth in this sector although severe manpower shortage could potentially slow down the pace of recovery in this sector.

Performance in the services sector has been mixed, and such phenomenon will persist until the borders have reopened. Although countries around the world are rushing to vaccinate their populations, progress in that regard has been laborious. To-date, about 670 million doses of vaccine have been administered, but that accounts for just 8.6% of the world’s 7.8 billion population. As such, existing cross-border travel restrictions are unlikely to be lifted in the near term, and that will continue to weigh down on the outlook for the hospitality and aviation industries. In the interim, trade related services, retail, financial and ICT services will have to continue to pick up the slack although there are also emerging signs of slowing momentum.

Overall, GDP growth figures in the first half of this year will be highly volatile, due to the base effects last year. As the recovery progress, expect growth momentum to slow as well. Vaccine will be a game-changer but that will take time. Hope is now pinned on the ongoing discussions with some countries on the bilateral reopening of the borders, which will most certainly provide a strong jab in the arm for the Singapore economy. While the recovery path is expected to remain tepid in the coming quarters, we are maintaining our above consensus growth forecast of 6.3% for 2021.

No change to monetary policy

Meanwhile, the Monetary Authority of Singapore (MAS) has kept the exchange rate policy stance status quo. The rate of appreciation of the SGD NEER policy band remains at zero. The width of the policy band and the level at which it is centred also remain unchanged. Although the authority has revised up its full year headline inflation (CPI-All Items) forecast to 0.5-1.5% (DBSf: 1.4%), core inflation remains benign and negative output gap continues to linger. There is still slack in the labour market, which will only see more pronounced improvement in 2H21. Output gap will turn positive only towards the end of the year or early next year if current growth trajectory persists.

The October policy decision will be trickier. The MAS could choose to take a pre-emptive approach (i.e., if inflation is a concern) or adopt a slightly passive stance and for the decision to be reaffirmed by potentially strong data. Simply put, October decision will be data dependent. It will depend on the dynamics between growth and inflation, and overlay with the risk ahead, not just domestically but also externally. On the flip side of the increasingly encouraging macro data, new variants of the virus, resurgence of the pandemic and the slow rollout of vaccines in some countries (including regional peers) are complicating the policy equation. Inflation is just one of the variables in this equation.


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Irvin Seah

Economist - Singapore
[email protected]


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