Singapore sticks to 3-5% growth forecast this year after expanding 7.6% in 2021

SINGAPORE’S economy in 2021 grew 7.6 per cent year-on-year, even faster than an advance estimate of 7.2 per cent, according to data from the Ministry of Trade and Industry (MTI) on Thursday (Feb 17) morning.

This is a turnaround from the previous year when Singapore saw its worst recession. In 2020, the economy contracted 4.1 per cent, although this is a revised figure from the earlier-published 5.4 per cent due to better performance from the services sectors, among others, according to MTI.

Fourth-quarter domestic product (GDP) expanded 6.1 per cent year-on-year, moderating from the previous quarter’s 7.5 per cent. However, this is also an improvement from an earlier estimate of 5.9 per cent.

On a quarter-on-quarter seasonally-adjusted basis, GDP grew 2.3 per cent in Q4, up from 1.5 per cent in the previous quarter. This is a slower clip than the advance estimate of 2.6 per cent.

Overall, GDP growth in 2021 was driven mainly by the manufacturing, finance and insurance and wholesale trade sectors, Gabriel Lim, Permanent Secretary of MTI, told reporters at a briefing.

The manufacturing sector grew 13.2 per cent, up from 7.5 per cent in 2020, on the back of increasing output across all clusters. The precision engineering, electronics and transport engineering clusters saw biggest growth.

The sector returned to double-digit growth at 15.5 per cent in Q4 after a brief slowdown in Q3 to 7.9 per cent.

The struggling construction sector, meanwhile, expanded by 20.1 per cent, a turnaround from the 38.4 per cent contraction in 2020.

The sector saw 3 consecutive quarters of expansion in 2021, although growth in Q4 slowed down drastically to 2.9 per cent, from 69.9 per cent in the previous quarter.

The services sector grew by 5.6 per cent, reversing from the 5.1 per cent contraction in 2020. Other than the administrative and support services, all the services industries expanded, with information and communications growing at the fastest pace of 12.2 per cent. This was followed by real estate at 10.7 per cent and retail trade at 10.2 per cent.

For 2022, MTI is keeping to a GDP forecast of 3-5 per cent, with Singapore’s external demand outlook having “deteriorated slightly” amid the global surge in Covid-19 cases seeded by the Omicron variant.

Global supply bottlenecks are expected to persist throughout the first half of 2022, which could constrain industrial production and GDP growth in the near term, and these bottlenecks, alongside rising energy prices due to geopolitical tensions, have also exacerbated global inflationary pressures, said Lim.

He added that the downside risks have increased, with the trajectory of the Covid-19 pandemic remaining uncertain due to the potential threat of more virulent strains, while the ongoing global supply disruptions could be more protracted than expected.

“There are upside risks to energy prices amid supply concerns arising from escalating geopolitical tensions involving Russia and Ukraine and in the Middle East as well as unpredictable weather conditions,” said Lim, adding that a spike in energy prices would exacerbate inflationary pressures and weigh on global economic growth.

“Should monetary policy tightening in the advanced economies be faster than expected, market adjustments could be disorderly and risks to financial stability could intensify,” he said.

However, with a further progressive easing of Covid-19 restrictions in Singapore announced on Wednesday, Lim said this will support the recovery of Singapore’s consumer-facing sectors and alleviate labour shortages in sectors that are reliant on migrant workers.

Air travel and visitor arrivals are also expected to improve with the gradual loosening of travel restrictions and expansion of Vaccinated Travel Lanes (VTL), he added.

This means growth prospects for outward-oriented sectors, including manufacturing and wholesale trade, remain strong given the global economic recovery, Lim said.

While the tourism and aviation-related sectors are poised for a slow recovery, overall activity in these sectors is expected to remain below pre-pandemic levels by end-2022, he said.

“Against this external and domestic backdrop, the Singapore economy is expected to continue to expand this year, although the outlook for various sectors remains uneven,” said Lim.

OCBC chief economist Selena Ling said the road ahead “definitely looks brighter” even though the retention of 2022 forecast numbers have not shifted the needle for a “return to steady trend growth story”.

“In fact, the latest announcements of simplification of Covid curbs and resumption and expansion of VTLs reinforce our expectations that there could be upside risks to our 3-5 per cent GDP growth forecast for this year,” she said.

Priyanka Kishore, head of India and South-east Asia economics at Oxford Economics, said growth momentum is expected to slow sequentially in H1 “amid a more protracted reopening due to the Omicron wave and rising inflationary pressures”.

Further monetary tightening and a return to “conservative fiscal policies” could also be on the cards this year, she said, adding that she is expecting 2022 growth to come in below the midpoint of the government’s range at 3.5 per cent.

Edward Robinson, chief economist at the Monetary Authority of Singapore (MAS), said MTI’s 2022 forecast is a pace that will see output slightly exceed potential, adding that core inflation forecast remains at 2-3 per cent.

Noting that the recent off-cycle monetary policy tightening builds on a pre-emptive shift to an appreciating stance in October 2021, he said: “I can confirm that the Singapore dollar nominal effective exchange rate has been appreciating, consistent with the announced policy stance and this will help dampen imported inflationary pressures through this year.”

MAS’s policy responses at the next 2 scheduled reviews in April and October remain “data dependent”, he added.

These forecast numbers do not take into account any possible goods and services tax (GST) hike, since the timing of the increase has not yet been announced, said MTI chief economist Yong Yik Wei.

The GST is set for a 2-percentage point increase to 9 per cent, and Finance Minister Lawrence Wong is expected to give details of the increase at Budget 2022 on Friday.