Singapore’s 2022 growth to be ‘slower but still above-trend’; employment may not reach pre-pandemic levels: MAS

• Oct 28, 2021

SINGAPORE’S economic growth in 2022 is expected to be slower than in 2021, but still above trend, the Monetary Authority of Singapore (MAS) said in its latest Macroeconomic Review on Thursday (Oct 28).

While the MAS did not put a number to “above-trend growth”, private-sector economists generally see Singapore’s pre-Covid trend growth as being somewhere between 2 and 3 per cent.

In the labour market, diminishing slack will support faster wage growth next year, and the resident unemployment rate is expected to keep decreasing towards its pre-Covid level. Yet, overall employment may stay below its pre-pandemic level even by end-2022.

Despite the Republic’s recovery having stalled in the last 2 quarters amid a Covid-19 resurgence, aggregate output returned to its pre-pandemic level in the third quarter, though industry performance varied significantly.

In Q3, the trade-related and modern services clusters surpassed their respective pre-pandemic levels by around 10 per cent and 5 per cent respectively.

In contrast, the domestic-oriented cluster was still some 10 per cent below its pre-crisis level, while the travel-related cluster’s output was half what it was before Covid-19.

Recovery in the domestic-oriented cluster “was held back by several rounds of heightened alert measures”, and current “stabilisation phase” measures are expected to dampen domestic economic activity in early Q4 2021.

But in line with the strategy of treating the virus as endemic, restrictions are likely to be gradually relaxed in the latter part of Q4 and into 2022, said the MAS.

“The domestic-oriented and travel-related clusters should see a gradual improvement as the economy progressively reopens, while growth in the trade-related and modern services sectors will be supported by the recovery in the global economy.”

However, despite the opening of Vaccinated Travel Lanes, “travel demand is not expected to return quickly or substantially in the near term”, it added.

“A stronger rebound in the travel-related sector may only materialise over the course of next year when border barriers are removed more substantially, and a recovery to pre-Covid output level is only anticipated after 2022.”

In the construction sector, recovery is expected to be hampered by elevated raw material costs and manpower shortages for the rest of 2021, but the easing of supply-side constraints beyond that should support higher activity levels.

The outlook for the manufacturing sector remains bright, with ongoing strength in the global electronics cycle providing support for the rest of 2021 and 2022.

Modern services, which supported growth in Q2 and Q3, will be further lifted by the broader economic recovery. As business travel recovers, the outlook for the professional services sector in particular – which “has been sluggish over the past year” – is expected to improve, with increased exports of segments such as business consultancy and head offices functions.

Barring major shocks such as the emergence of a vaccine-resistant virus strain, Singapore’s economy should expand at an above-trend pace.

As a function of productivity and labour force growth, trend growth depends partly on Singapore’s population and immigration policy, said Maybank Kim Eng economist Chua Hak Bin, whose underlying assumption is of trend growth of about 2 to 2.5 per cent.

While the labour market recovery was interrupted by domestic curbs in Q2, remaining slack is expected to dissipate in 2022.

But the MAS noted that sectoral disparities in labour market outcomes are widening, adding: “For the economy as a whole, labour market mismatch likely intensified in recent quarters.”

Heightened alert measures took a greater toll on labour demand for consumer-facing segments such as food and beverage services and retail trade, while sectors such as construction and manufacturing faced labour supply constraints.

Affected workers in the former sector were unlikely to have moved easily to latter ones, said the MAS. This mismatch led to a rise in the resident unemployment rate in July, and higher job vacancy rates in Q2.

In 2022, the resident unemployment rate is projected to decline further, approaching its pre-Covid level within the year.

Wage growth is expected to strengthen as the labour market tightens, confidence recovers, and government policies result in higher wages at the bottom end.

Meanwhile, “some lingering mismatch” may put upward pressure on wages in some pockets of the market, with demand likely to keep rising in sectors such as information and communications; health and social services; as well as financial and insurance services.

“In these sectors, employment and job vacancies have both exceeded pre-Covid levels, suggesting tightening in labour market conditions,” said the MAS.

As for employment levels, resident employment should keep expanding at a firm pace in 2022, though slowing from 2021. Non-resident employment is expected to stabilise and then rise gradually, as an improved Covid-19 situation allows more migrant workers to enter.

Yet the overall level of employment may not be restored to its pre-Covid level even by the end of 2022, “in part because firms are expected to raise labour productivity, while demographic factors will continue to weigh on resident workforce growth”, said the MAS.

The trajectory of global recovery is similar to that of Singapore, with renewed Covid-19 infections having posed a setback in Q2 and Q3, but growth expected to stay above trend in 2022.

Global gross domestic product growth is projected at 5.6 per cent for 2021, and 4.8 per cent in 2022.

Recent supply chain bottlenecks have forced up prices for commodities and manufacturing inputs, with some pass-through to consumer prices. But inflationary pressures should ease in 2022 as supply problems are resolved, though there is a risk this could take longer than expected.

Global inflation is projected at 2.6 per cent in 2021 – the highest since 2011 – and is expected to remain elevated at 2.4 per cent in 2022, reflecting a narrowing global output gap.

In Singapore, the large negative output gap that opened in 2020 and narrowed significantly in 2021 is expected to become modestly positive in 2022.

Source: https://www.businesstimes.com.sg/government-economy/singapores-2022-growth-to-be-slower-but-still-above-trend-employment-may-not