Singapore’s economy still on track for recovery despite ‘stumble’ in Q2 quarterly GDP: Experts
SINGAPORE: Singapore’s economic recovery remains intact despite a “stumble” in the second quarter, economists said following the release of preliminary economic data on Wednesday (Jul 14).
Advance estimates from the Ministry of Trade and Industry (MTI) showed the economy contracting 2 per cent on a quarter-on-quarter seasonally adjusted basis, reversing from the first quarter’s 3.1 per cent growth.
On a year-on-year basis, however, the economy grew 14.3 per cent in the April to June quarter, helped by a low base in the same period last year when gross domestic product (GDP) plunged by 13.3 per cent due to the COVID-19 “circuit breaker”.
READ: Singapore economy grows 14.3% in Q2; strong growth largely due to low base a year ago: MTI
The dip in the quarter-on-quarter figure was due to the tightening of public safety measures under the "Phase 2 (Heightened Alert)" that lasted from May 16 to Jun 13. The ban on dine-ins and other stricter curbs took a toll, especially on the food services and other services sectors.
But experts reckoned that this was a temporary setback.
Barclays Bank economist Brian Tan said the latest quarter-on-quarter GDP contraction was “relatively modest”. In his note titled “A stumble, not a fall”, he added that it supported his view of the economy being more resilient this time, compared with last year’s drastic two-digit plunge amid the circuit breaker.
Mr Alex Holmes from Capital Economics noted that while the economy “stumbled” in the second quarter, a recovery is “likely already back on track” with the restrictions being loosened over the last few weeks as infection rates dropped.
High-frequency indicators already suggest that community mobility is returning to levels seen before stricter curbs were introduced in May, said Mr Tan. This means that a quarter-on-quarter rebound in the third quarter seems likely, he added.
Moody’s Analytics’ associate economist Eric Chiang also said: “While Singapore’s heightened COVID-19 measures in May (have) put a temporary pause in its GDP growth, the economic downturn is smaller than in Phase 1 of the 2020 reopening plan.”
READ: Private-sector economists raise Singapore’s 2021 growth forecast again to 6.5%: MAS survey
STRONG EXPORTS, FASTER VACCINE ROLLOUT
One reason for optimism, according to economists, is a favourable external environment which can be seen in the country’s non-oil domestic exports (NODX).
NODX grew at a faster rate of 8.8 per cent in May, following a 6 per cent gain in April and extending a positive growth trend seen since December last year. Mr Chiang said he expects this recent strong growth in NODX to remain resilient.
Domestically, retail sales surged 79.7 per cent in May from a year ago period despite the absence of tourism-led demand.
This, according to UOB economist Barnabas Gan, suggested that domestic retail demand, led by a recovering labour market, “may be sufficient to support a reasonable recovery in the retail industry this year”.
Economists also pointed to a speed-up in Singapore’s vaccination programme, which would help pave the way for a further reopening of the economy. Last month, the country’s COVID-19 task force announced the aim of fully vaccinating two-thirds of the population by National Day.
READ: Singapore targets having two-thirds of population fully vaccinated against COVID-19 by National Day
“Rapid progress with COVID-19 vaccinations should allow for more social distancing measures to be relaxed, further supporting a sequential GDP growth recovery in the second half,” said Mr Tan.
He also noted that Prime Minister Lee Hsien Loong is set to deliver this year’s National Day Rally speech on Aug 22.
“(The speech is) a possible platform for announcing a significant relaxation of social distancing measures and further details on how Singapore will operate in the new normal,” wrote the Barclays economist.
Next month could also see an upgrade in the official growth forecast range, which remains at 4 per cent to 6 per cent for now.
Mr Tan said the outlook could be raised to 6 per cent to 8 per cent, while Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye are pencilling in a narrower range of 6 per cent to 7 per cent.
Dr Chua and Ms Lee also upgraded their full-year GDP forecast to 6.8 per cent, up from 6.2 per cent, given a stronger-than-expected performance by the manufacturing sector in the second quarter and the country’s rapid vaccine roll-out.
The possibility that the economy could outperform the upper end of the official outlook is also shared by Mr Gan, who revised his full-year growth estimate for this year to 6.5 per cent.
He cited a “rosier economic prognosis” ahead and the fact that growth for the first half of 2021 already stands at 7.4 per cent year-on-year after accounting for the strong performance in the second quarter.
READ: Singapore's 2021 economic growth could exceed forecast of 4% to 6%: Central bank chief
SOME CONCERNS REMAIN
That said, some concerns remain such about how COVID-19-related risks may evolve in the months ahead for Singapore, as well as across the country’s key trading partners, said Mr Gan.
For instance on Tuesday, Indonesia reported a record daily increase in COVID-19 infections, while Malaysia saw daily new cases hit five figures for the first time.
Mizuho Bank’s head of economics and strategy Vishnu Varathan noted “lingering downside risks and lurking interruptions” to the recovery as the spread of the more contagious Delta variant around the region casts “a shadow” on Singapore’s small, open economy.
The latest economic data also hint at an uneven recovery ahead.
While the construction sector expanded 98.8 per cent year-on-year in the second quarter, it remained 31.6 per cent below its pre-pandemic level seen in the same quarter of 2019.
This indicated that the sluggish activity pipeline and foreign manpower constraints “remain binding for now”, said OCBC Bank’s head of treasury research and strategy Selena Ling.
READ: Food caterers ‘hobbling on’ amid slow recovery from COVID-19 pandemic
Most of the services sectors, such as wholesale and retail trade, transportation and storage, as well as accommodation and food services, also remain below pre-pandemic levels.
“This is a reminder that despite the whippy year-on-year and quarter-on-quarter seasonally adjusted prints, there are still sectors within the Singapore economy that have not recovered to their pre-COVID levels yet, albeit we are gradually getting there,” she said.
DBS senior economist Irvin Seah noted that while the manufacturing sector remains in the driving seat of growth, there are emerging signs of a slower growth pace ahead.
These include existing shortages of semiconductor chips which will put a lid on the pace of expansion in the electronics cluster despite strong global demand, he said.
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