Coronavirus: Singapore exits pandemic-induced recession as economy grows 1.3 per cent
- City state shows signs of recovery after three consecutive quarters of contraction, as manufacturing posts stronger-than-expected growth of 10.7 per cent
- But experts are cautious about the outlook for the second quarter, saying a rise in infections and new restrictions may dampen prospects
The improvement came on the back of a stronger-than-expected performance in the manufacturing sector, which grew 10.7 per cent year on year. This was driven by output expansions in the electronics, precision engineering and chemicals clusters, the trade ministry said.
The ministry maintained its forecast for full-year GDP growth of between 4 and 6 per cent in 2021, but added that it would review it next quarter when there is greater clarity over global and domestic economic situations. Last year GDP contracted 5.4 per cent.
Economists had previously been hopeful that growth in the second quarter of this year would be more robust but recent events have dampened their optimism.
Authorities this month imposed stricter measures, limiting social gatherings to two people and banning dining in at food places. Residents are also being urged to work from home and classes for students have been moved online.
While these measures, set to expire on June 13, are not as strict as an earlier partial lockdown in which most retail shops were closed and no social gatherings allowed, they are expected to dampen consumer sentiment and the economic recovery.
“It’s a setback,” said Selena Ling, head of treasury research and strategy at OCBC Bank.
But Ling added that people had adapted to work-from-home arrangements and online shopping, so disruptions to businesses should not be as acute as last year.
In the second quarter of 2020, Singapore’s economy fell 13.3 per cent year on year.
With the current measures more calibrated, Song Seng Wun, economist at CIMB Private Banking, said the impact would probably be greater in consumer-facing businesses, such as the food and drinks and services sectors.
Firms in construction would be hit too, said Ling, referring to how the government had this month tightened border restrictions and suspended entry applications for workers from higher-risk countries. “This means the manpower constraint on certain sectors like construction, marine and process is even more binding,” she said.
Singapore’s tightened measures would also hit consumer and business confidence, said Song, noting that there had been rumours of a complete lockdown. This speculation comes despite policymakers stressing that Singapore is better positioned to deal with the current wave. “Nonetheless, it is at the back of many people’s and businesses’ minds,” he said.
Ling said Singapore’s recovery trajectory would depend on whether the current measures would extend beyond June 13 and into the third quarter. She said on the present trajectory Singapore would still be able to grow between 5 and 6 per cent for the full year.
Gabriel Lim, permanent secretary at the trade ministry, noted that while the recent tightening of restrictions would affect segments of the economy, the broader economy should still see a recovery this year. He stressed that the current suite of measures were “quite different” from the partial lockdown last year.
“Many more parts of the economy are open. In fact, running at full steam,” he said, citing the manufacturing industry, for example.
Meanwhile, the ministry said there were other significant downside risks, pointing to how countries around the world have experienced waves of infections, with the emergence of more transmissible virus strains and delays in vaccine roll-outs.
“These resurgences, as well as the countries’ public health responses to them, will inevitably affect their economic growth,” it said, but added that given the experiences last year, it hoped that countries would be able to avoid repeated blanket lockdowns.
This was also echoed by Ling, the economist, who described the resurgence of Covid-19 cases across Asia as worrying.
“This may in turn weigh on external demand and confidence. However, most of the economic activities have not been curtailed despite the tightening of restrictions so hopefully the impact on the overall economy will be more muted,” she said.
“That said, the optimism from the first quarter has to be tempered from here.”