Singapore: Speed bump in 2Q21
- Final 1Q GDP figures came in better than expected at 1.3% YoY and 3.1 QoQ sa
- Expect a sequential pullback in 2Q21 due to the recent tightening of safe measures
- Implication for our forecast – On track to meet our growth forecast of 6.3% for 2021
- Implications for investors – No change to the exchange rate policy for now
The Singapore economy registered a better than expected performance in the first quarter. The final GDP growth figures for 1Q21 were raised to 1.3% YoY (3.1% QoQ sa), up from 0.2% YoY (2.0% QoQ sa) in the advance estimates. The manufacturing sector posted another double-digit performance (+10.7%) in the quarter while growth in the services cluster was revised up to -0.5% YoY (from -1.2%). While the latest set of figures has reaffirmed that recovery is on track, the latest set of tighter safe measures (Phase 2 Heightened Alert, P2HA)
introduced by the government to curb the current second wave of domestic infections will likely put a dent on the second quarter GDP growth performance. A sequential (% QoQ sa) pullback is on the cards.
Slower growth in manufacturing ahead
The better than expected industrial performance in Mar21 has been the main reason for the upward revision in the headline GDP figure. Industrial output for Mar21 came in at 7.6% YoY compared to an implicit assumption of -3.4% in the advance estimates. However, recent exports and PMI numbers are suggesting a slowdown in momentum. This is consistent with our long-held view that the earlier robust pace of expansion in manufacturing will make way for a more sustainable pace going forward.
Outlook for the manufacturing sector should remain sanguine although some degree of moderation can be expected. Global demand for high end electronics parts and components will remain strong due to further adoption of the 5G networks, WiFi 6, as well as continued proliferation of AI, IOT, EVs but existing supply side bottleneck, specifically terms of shortages of semiconductor chips could pose a hindrance to achieving higher pace of expansion in this cluster in the near term.
Separately, the robust expansion in industrial and export growth in recent months on the back of a global recovery is now met with speed bumps arising from the recent waves of COVID infections across the world. Indeed, a normalisation process was already taking place over the past two months as momentum on the external front was showing signs of fatigue. Plainly, both exports and industrial output will be more subdued in the coming months.
Manpower crunch in construction to stay
Likewise, outlook for the construction sector is improving amid rising progress payments and contracts awarded, and resumption in work activities. Yet, further tightening of border control measures, particularly with respect to South Asian countries, which are the key sources of manpower for the sector, will likely weigh down on the performance of the sector in the coming months.
Pullback in services in 2Q21
Performance in the services sector has been mixed, and such phenomenon will persist particularly given that the recent tightening in safe measures amid spikes in community infections. The P2HA measures that were introduced to curb the current wave of infections in the community will hit the F&B sector, and to some extent the retail industry as well. In this regard, expect a marginal pullback in services growth momentum in 2Q21, which will have implications on the overall GDP performance in the same quarter.
Moreover, the recent resurgence of COVID infections across the world, with new and more infectious variants, has threw a spanner in the works. As such, existing border restrictions are unlikely to be lifted in the near term, and risk is they may get tighter. This will continue to weigh down on the outlook for the hospitality and aviation industries. In the interim, trade related services, financial and ICT services will have to continue to pick up the slack although there are also emerging signs of slowing momentum.
No change to growth forecast for now
The second quarter will likely register a decline in QoQ growth although the impact will be partially offset by the stronger than expected performance in the first quarter. Yet, headline growth (in YoY terms) will report a strong double-digit expansion of about 14% due to the low base resulting from the Circuit Breaker last year. Such scenario is consistent with our view (see DBS report, “Singapore: Recovery is on track” dated 14 Apr21), which has already been factored into our current full year GDP growth forecast of 6.3%. The current one-month duration of the P2HA, as well as the nature of the measures also imply a limited impact. Unless the P2HA period gets extended significantly or new stiffer measures are introduced, we are maintaining our existing growth forecast of 6.3% for 2021.
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