Singapore: Economy contracts at slower pace in Q4
January 4, 2021
Activity shrank at a notably slower pace in the fourth quarter according to an advanced estimate, marking a continued improvement after the economy contracted at the sharpest rate in over three decades in Q2. In Q4, the economy shrank 3.8% year-on-year (Q3: -5.6% yoy). Meanwhile, in quarter-on-quarter seasonally adjusted terms, the economy grew 2.1%, following the 9.5% expansion recorded in Q3.
The softer overall decline in annual terms was spearheaded by milder contractions in the services sector (Q4: -6.8% yoy; Q3: -8.4% yoy) and the construction sector (Q4: -28.5% yoy; Q3: -46.2% yoy), while the manufacturing sector grew strongly, albeit at a slightly slower pace (Q4: +9.5% yoy, Q3: +10.8% yoy). The relatively low number of domestic Covid-19 cases during the period allowed for a sequential improvement in output in Q4, although external headwinds will have tempered the upturn, particularly within trade- and tourism-focused services. However, buoyant demand for electronics and semiconductor products supported the overall improvement once again.
The outlook for Q1 and further into 2021 remains uncertain: The phased reopening of the economy and the start of a nationwide vaccination drive from the end of December 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 4Q GDP print brings the annual contraction in 2020 to -5.8%, just shy of the official view of a contraction between 6–6.5%. This is the steepest annual contraction ever. However, the economic outlook for the current year is clouded by the continued global spread of Covid-19, now with a new variant. As such, the government’s view of a bounce-back by 4–6% in 2021 looks a bit optimistic. We maintain our 3.8% growth forecast for this year.”
Regarding the outlook for 2021, Irvin Seah, economist at DBS Bank, commented:
“GDP growth figures in the first half of this year will be highly volatile, due to the base effects last year. Yet, the recovery should gain momentum in the second half of the year, assuming that vaccines will become available and global travel can safely resume thereafter. With that, we are maintaining our growth forecast of 2021 at 5.5%”
Author: Stephen Vogado, Economist