Singapore: Economic contraction slows in Q3
Activity shrank at a markedly slower pace in the third quarter according to an advanced estimate, after contracting at the sharpest rate in over three decades in the second quarter. In Q3, the economy shrank 7.0% year-on-year (Q2: -13.3% yoy). However, in quarter-on-quarter seasonally adjusted terms, the economy grew briskly, expanding 7.9% and contrasting the 13.2% contraction recorded in Q2.
The softer overall decline in annual terms was spearheaded by milder contractions in the construction sector (Q3: -44.7% yoy; Q2: -59.9% yoy) and the services sector (Q3: -8.0% yoy; Q2: -13.6% yoy), while the manufacturing sector returned to growth (Q3: +2.0% yoy, Q2: -0.8% yoy). The prolonged nature of the pandemic and the requirement to implement safety measures in order for businesses to restart had a restraining effect on the construction and services industries. Meanwhile, an uptick in demand for semiconductor products drove an increase in output in the electronics manufacturing sector.
The outlook for Q4 and into 2021 remains uncertain: The phased reopening of the economy and the current low rates of infection domestically are likely to support activity going forward. However, external headwinds and uncertainty regarding the full extent of the expected recovery in demand cloud the outlook significantly.
Commenting on the result, Prakash Sakpal, senior economist at ING, noted:
“The pace of the GDP bounce in 3Q is undoubtedly going to taper sharply over coming quarters as the base effect becomes unfavourable. But the reality is that with continued prospects of anaemic global demand and rising unemployment and bankruptcies at home the recovery is going to be very slow. The export-led manufacturing recovery is gaining momentum. But a lot depends on the services sector recovery given the sector’s two-third weight in GDP. […] All this suggests that there is no room for complacency on the policy front with the fiscal policy continuing to do the heavy-lifting to support the recovery going forward.”