Singapore: Raising GDP growth forecast


We have raised full year GDP growth to 6.7%, up from 6.3% previously, given a slightly stronger than expected 3Q21 growth performance and upward revision in 2Q figure.
Irvin Seah14 Oct 2021
  • Advance GDP growth for 3Q21 came in at 6.5% YoY and 0.8% QoQ sa
  • Growth momentum is slightly stronger than expected
  • Implications for our forecast – We have raised our growth forecast to 6.7% for 2021
  • Implications for investors – MAS has normalised monetary policy as expected
Photo credit: Unsplash


Singapore’s economic recovery from the COVID-19 crisis has turned out to be slightly stronger than expected. Despite the moderation in the headline YoY number due to higher base effect, the sequential growth number has come in marginally higher than anticipated. The economy posted a strong showing of 6.5% YoY and 0.8% QoQ sa even with the impact of the second round of Heightened Alert measures in Jul-Aug period. With GDP growth in 2Q21 having also been revised upward to 15.2%, up from 14.7% previously, and barring possible drag from a weaker growth outlook in China, there is marginal upside risk to our current GDP growth forecast of 6.3% for 2021.

Key manufacturing sector remains in the driving seat, but momentum is waning. Although semiconductor equipment billings and global shipments of semiconductors continue to pick up amid strong investment in digital solutions and new technologies, industrial output was dragged down by slowdown in growth momentum in China (including the closure of Ningbo port, the world’s third busiest in August) and resurgence in COVID infections in many Asia economies.

All eyes will be on China in the coming 6-12 months, as China’s power supply shortage will imply further disruption to regional supply chain and make for a weaker manufacturing growth in Singapore in 4Q. China’s recent policy shift towards tech companies and the focus on common prosperity will also mean slower growth in this key market, which will have spill-over effects on Singapore’s medium term growth outlook.

Labour crunch remains the biggest challenge for the construction sector. The sharp upturn of 57.9% YoY came largely from the low base last year. In contrast, continued sequential decline is a reflection of the manpower crunch within this sector even though project pipeline remains strong. As of 2Q21, there is an unprecedented job vacancy of 11.6K in the industry. Indeed, the sector is still far from a full recovery from the pandemic, as the value-added of the sector is still significantly below pre-COVID level. Existing border control measures will continue to weigh down on the performance of the sector in the coming months. Hope is now pinned on further reopening of the borders to help ease the current manpower crunch.

Outlook for the services sector is improving. High inoculation rate will prompt further easing of safe measures for more Vaccinated Travel Lanes (VTLs) to be established. Yet, while the reopening of the economy in 4Q21 may offer some glimmer of hope, expectation is that it will be implemented with great caution, and the progress will be calibrated and gradual. As such, performance in these sectors is unlikely to turnaround significantly in the immediate term. Nonetheless, there is light at the end of the tunnel for the tourism related sectors that have been worst affected by the pandemic. We expected continued improvement in growth performance for the service sector in the coming 12 months.

Growth forecast revised up

A high level of vaccination rate will make for a safe reopening of the economy and allow economic activities (including travel) to resume to normalcy. Progress in this regard has been encouraging. Barring the risks on the efficacy of existing vaccines being weakened as a result of virus mutations or waning antibody levels, the reopening of the economy is expected to provide renewed impetus to growth over the next 12 months.

While economic normalisation remains at work and recovery momentum is expected to slow, #q21 GDP growth has surprised mildly on the upside. Furthermore, the GDP growth figure for 2Q21 has been revised up. Taking all these into account, we have raised full year GDP growth to 6.7%, up from 6.3% previously.

The MAS normalised monetary policy in today’s policy decision, which is in line with our long-held view (Kindly refer to DBS report, “Singapore: Towards mass vaccination and economic recovery” dated 15 Jun21). The authority increased the slope of the SGD NEER policy band but kept the centre and the width of the band unchanged.

Inflation is rearing its head again and economic recovery is underway. As economic fundamentals continue to normalize, monetary policy would have to follow suit. This pre-emptive move by the central bank will help to rebalance the dynamics between growth and inflation as the Singapore continues to embark on this recovery journey. We do not expect further adjustment in the policy stance unless there is further upside risk to both growth and inflation.


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Irvin Seah

Economist - Singapore
[email protected]

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