Singapore: Economy returns to growth for first time since start of pandemic in Q1
The economy expanded 0.2% year-on-year in the first quarter according to an advanced estimate, marking a return to growth after three consecutive quarters of falling activity (Q4 2020: -2.4% yoy). Meanwhile, in seasonally-adjusted quarter-on-quarter terms, the economy grew 2.0% in Q1, slowing somewhat from the 3.8% expansion recorded in the prior quarter.
The overall improvement in annual terms was spearheaded by milder contractions in the services sector (Q1: -1.2% yoy; Q4: -4.7% yoy) and the construction sector (Q1: -20.2% yoy; Q4: -27.4% yoy), while the manufacturing sector grew strongly, albeit at a slightly slower pace (Q1: +7.5% yoy, Q4: +10.3% yoy). The relatively low number of domestic Covid-19 cases during the period allowed for a sequential improvement in output in Q1, while buoyant demand for electronics and semiconductor products supported the overall reading once again. However, weak economic activity in regional partners will have tempered the upturn, particularly within trade- and tourism-focused services.
The outlook for Q2 and further into 2021 appears positive: The relatively light restrictions on daily life and region-leading vaccination drive 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.
Regarding the outlook for 2021, Euben Paracuelles and Charnon Boonnuch, economists at Nomura, commented:
“We reiterate our 2021 GDP growth forecast of 7.5%, well above the official forecast range of 4.0-6.0% and the consensus forecast of 6.1%. Our view continues to be supported by the strengthening manufacturing sector, material progress on vaccinations, a further reopening and improving labour markets. We still think that [industrial production] growth in March will remain solid and exceed the flash estimate, which would suggest there is significant scope for an upward revision to the final Q1 GDP growth estimate at its release in May.”
Meanwhile, Prakash Sakpal, senior economist at ING, sees some uncertainty regarding the recovery, but nevertheless predicts strong GDP growth over the remainder of the year:
“The sustained Covid-19 spread globally continues to threaten the export-led recovery over the rest of the year. Even so, year-on-year GDP growth is poised for a significant jump in 2Q21 (ING forecast 14.2% YoY) as the sharp plunge of activity during the Covid-19 Circuit Breaker a year ago flatters the 2Q21 comparison. As the base effects work through the year, we expect the yearly GDP growth rate to taper to low single digits over the second half of the year.”