Singapore: Economy grows at fastest rate in 11 years in Q2
July 14, 2021
The economy expanded 14.3% year-on-year in the second quarter according to an advanced estimate, marking a rapid acceleration from Q1’s 1.3% growth and the fastest expansion since Q2 2010. Meanwhile, in seasonally-adjusted quarter-on-quarter terms, the economy shrank 2.0% in Q2, contrasting the 3.1% expansion recorded in the prior quarter.
The overall improvement in annual terms was spearheaded by a return to growth in the services sector, which jumped 9.8% year-on-year in Q2 (Q1: -0.5% yoy), marking the fastest expansion in over 10 years. Meanwhile, the construction sector rebounded strongly, surging 98.8% in Q2 and contrasting Q1’s 23.1% contraction, while growth in the manufacturing sector accelerated (Q2: +18.5% yoy; Q1: +11.3% yoy). Buoyant demand for electronics and semiconductor products will have supported the overall reading once again, although it was also boosted by a supportive base effect: Q2 2020 saw a large contraction in activity as a result of the coronavirus pandemic. However, the impact of tighter Covid-19-related restrictions during May–June will have likely tempered the upturn, particularly within trade- and tourism-focused services.
The outlook for the remainder of 2021 appears positive, although most panelists see growth slowing from Q2’s lofty heights. While the easing of restrictions on daily life and the region-leading vaccination drive are likely to support activity going forward, external headwinds and uncertainty regarding the full extent of the expected recovery in demand remain key risks to the outlook.
Irvin Seah, economist at DBS Bank, sees growth slowing in the second half of the year compared to H1:
“The economy remains well on track to meet our full year GDP growth forecast of 6.3% for 2021, but that also implies an expectation of a growth slowdown in H2. A combination of slower growth momentum in manufacturing, manpower crunch in construction, and continued drag from Covid-19 on tourism-related sectors will make for a slower second half of the year.”
Conversely, Euben Paracuelles and Charnon Boonnuch, economists at Nomura, project a slight uptick in growth for the final six months of the year:
“For H1, GDP growth reached 7.4% yoy, and our full-year forecast pencils in a slight pickup to 7.5% in H2. Our optimistic view is premised on the continued strong expansion in the manufacturing sector, driven by the sustained tech upcycle, and global vaccine manufacturing boosting pharmaceuticals output. More broadly, robust global growth should boost external demand further.”
Author: Stephen Vogado, Economist