SINGAPORE: Despite a “stumble” in the second quarter, experts say Singapore’s economic recovery is still intact, according to preliminary economic statistics released on Wednesday (Jul 14). According to preliminary estimates from the Ministry of Trade and Industry (MTI), the GDP shrank by 2% quarter-over-quarter on a seasonally adjusted basis, reversing the first quarter’s 3.1 percent gain.
However, the economy gained 14.3% year over year in the April to June quarter, assisted by a low base in the same period last year, when GDP fell 13.3% owing to the COVID-19 “circuit breaker.”
READ: Singapore’s GDP grew 14.3% in the second quarter, owing to a low starting point a year ago: MTI The drop in the quarter-over-quarter figure was caused by the tightening of public safety measures during “Phase 2 (Heightened Alert)” from May 16 to June 13. The ban on dine-ins and other tougher restrictions had a toll, particularly on the food and service industries. Experts, however, believe that this is only a short setback.
The latest quarter-on-quarter GDP decrease, according to Barclays Bank economist Brian Tan, was “quite mild.” He noted that it backed his opinion of the economy being more resilient this time, compared to last year’s catastrophic two-digit drop amid the circuit breakdown, in his note headlined “A stumble, not a fall.” While the economy “stumbled” in the second quarter, Capital Economics’ Mr Alex Holmes remarked that a recovery is “likely already back on track,” with limitations being eased in recent weeks as infection rates fell. According to Mr Tan, high-frequency indications already imply that community movement is reverting to levels seen before the May implementation of harsher limits. He went on to say that a quarter-over-quarter rebound in the third quarter seemed plausible. “While Singapore’s heightened COVID-19 measures in May (have) put a temporary hold in its GDP growth, the economic slowdown is lower than in Phase 1 of the 2020 reopening plan,” said Eric Chiang of Moody’s Analytics.
READ: Singapore’s GDP projection for 2021 has been raised to 6.5 percent by private-sector economists: STRONG EXPORTS, FASTER VACCINE RELEASE, SURVEY BY THE MAS Economists believe that a favorable external environment, as evidenced by the country’s non-oil domestic exports, is one basis for confidence (NODX). Following a 6% gain in April, NODX grew at a quicker rate of 8.8% in May, extending a positive growth trend that began in December last year. Mr. Chiang believes that the current significant increase in NODX will continue. Despite the absence of tourism-driven demand, retail sales in May increased by 79.7% from the previous month. According to UOB economist Barnabas Gan, this suggests that domestic retail demand, fueled by a strengthening labor market, “may be adequate to support a decent retail recovery this year.” Economists also suggested that Singapore’s immunization program be accelerated, which would assist pave the path for the economy to reopen further. The country’s COVID-19 task force declared last month that by National Day, it hoped to have fully vaccinated two-thirds of the population. READ: By National Day, Singapore hopes to have two-thirds of the population fully vaccinated against COVID-19. “Rapid progress with COVID-19 vaccines should allow for further social distancing measures to be removed in the second half, further boosting a sequential GDP growth recovery,” Mr Tan said. He also mentioned that Prime Minister Lee Hsien Loong will give the National Day Rally speech this year on August 22. “(The speech is) a potential platform for announcing a considerable relaxation of social distancing measures as well as additional details on how Singapore will operate in the new normal,” the Barclays economist wrote. The official growth forecast range, which is currently set at 4% to 6%, could be upgraded next month as well. Mr Tan believes the estimate might be raised to 6% to 8%, while Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye believe the range should be closer to 6% to 7%. Dr Chua and Ms Lee also raised their full-year GDP prediction to 6.8% from 6.2 percent, citing the manufacturing sector’s stronger-than-expected performance in the second quarter and the country’s quick vaccine roll-out. Mr Gan, who upped his full-year growth estimate for this year to 6.5 percent, agrees that the economy could beat the high end of the official outlook. He noted a “better economic outlook” for the future, citing the fact that growth for the first half of 2021 is already at 7.4% year-on-year after accounting for the strong second-quarter performance. READ: Singapore’s economic growth in 2021 could exceed forecasts of 4% to 6%, says central bank chief A FEW QUESTIONS REMAIN. However, some concerns remain, including how COVID-19-related risks may grow in the months ahead for Singapore and its important trading partners, according to Mr Gan. For example, Indonesia reported a daily spike in COVID-19 infections that set a new record on Tuesday, while Malaysia saw daily new cases reach five figures for the first time. As the spread of the more contagious Delta variety across the region throws “a shadow” on Singapore’s small, open economy, Mizuho Bank’s head of economics and strategy Vishnu Varathan warned of “lingering negative risks and hidden pauses” to the recovery. The most recent economic indicators also point to an uneven recovery in the near future. While the construction sector grew by 98.8% year over year in the second quarter, it was still 31.6% behind its pre-pandemic level in the same period of 2019. According to OCBC Bank’s head of treasury research and strategy Selena Ling, the sluggish activity pipeline and foreign manpower limits “remain binding for now.” READ: Food caterers ‘hobbling along’ in the aftermath of the COVID-19 pandemic “This is a reminder that, despite the erratic year-on-year and quarter-on-quarter seasonally adjusted prints, there are still sectors within the Singapore economy that have not recovered to pre-COVID levels, albeit writ large.” While the industrial sector remains the engine of growth, DBS senior economist Irvin Seah remarked that there are signals of a slower growth pace ahead. These include current semiconductor chip shortages, which, despite robust worldwide demand, will slow the pace of expansion in the electronics cluster, he said. ADD THIS TO YOUR BOOKMARKS: Our in-depth coverage of the COVID-19 pandemic and its progression For the most up-to-date information on the coronavirus outbreak, download our app or follow us on Telegram: https://cna.asia/telegram/n
