Singapore: Reopening growth impetus ahead


Singapore’s inoculation effort and its approach towards reopening will be pivotal to its economic performance in the next 12 months.
Irvin Seah11 Aug 2021
  • GDP growth for 2Q21 came in at 14.7% YoY and -1.8% QoQ sa
  • Reopening of the economy will provide renewed growth impetus ahead
  • Implications for our forecast – On track to meet our growth forecast of 6.3% for 2021
  • Implications for investors – Risk of monetary policy normalisation in October
Photo credit: Unsplash


Singapore’s recovery from the COVID-19 crisis remains on track. The economy posted a robust expansion of 14.7% YoY in the second quarter, slightly above consensus and our own expectation of 14.2% YoY. Nonetheless, the strong YoY headline growth is largely the result of the low base last year due to the Circuit Breaker (CB). A sequential decline of 1.8% QoQ sa due to the implementation of the Phase Two Heightened Alert (P2HA) measures in May-June to contain the spread of the Delta variant in the local communities has put a slight dent on an otherwise strong recovery.

Key manufacturing sector remains in the driving seat, but the latest set of figures has confirmed our long-held belief that momentum (-2.5% QoQ sa) is waning. Existing shortages of semiconductor chips may put a lid on the pace of expansion in the electronics cluster even though global demand for high end electronics parts and components remains strong. However, the manufacturing sector will continue to remain in expansion mode amid a resilient global recovery phenomenon. Beyond electronics, strong performance is expected from the petrochemical, precision engineering and transport engineering clusters in the coming quarters.

Manpower crunch remains the biggest impediment to the full recovery of the construction sector. The sharp upturn of 106.2% YoY is largely on the back of the low base due to CB last year. A sequential decline of 7.6% QoQ sa reflects the manpower crunch within this sector. And in absolute terms, 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 until a reopening of the economy, which is expected to help ease the current manpower crunch.

Despite the robust 10.3% YoY showing, performance in the services sector will remain mixed. The re-implementation of the P2HA in Jul/Aug will dampen the performance of the F&B, retail and professional services sectors in the third quarter. Apart from financial services, there are also emerging signs of a broad-based slowdown in momentum (in QoQ sa basis) in the other services industries. Moreover, tourism related industries such as aviation and accommodation remain weighed down by the ongoing COVID situation, particularly with the severe infection rate in many of the key tourism markets in the region (e.g., Indonesia, Malaysia and Thailand). Though 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. The value added (in absolute terms) of these sectors will remain below pre-COVID levels despite rising hope of border reopening.

Reopening impetus

Singapore’s inoculation effort and its approach towards reopening will be pivotal to its economic performance in the next 12 months. 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.

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Irvin Seah

Economist - Singapore
irvinseah@dbs.com


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