Singapore: Revised estimate reveals softer GDP contraction in Q3
November 23, 2020
Singapore’s economy contracted less than initially expected in Q3, according to new figures released on 23 November, as the gradual easing of circuit breaker measures during the period bolstered activity. GDP fell 5.8% year-on-year in the third quarter, above the 13.3% contraction seen in the second quarter and a marked improvement on the 7.0% contraction from October’s advanced estimate. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, the economy bounced back strongly, with GDP jumping 9.2% in Q3, contrasting the previous period's 13.2% decrease.
The improvement in annual terms was broad-based, with the manufacturing, construction and services sectors all contributing to the softer overall fall. The manufacturing sector rebounded sharply, expanding 10.0% year-on-year (Q2: -0.8% yoy), driven by strong electronics output amid healthy global demand for semiconductors. Meanwhile, the contraction in the construction sector softened to 46.6% in Q3 from 60.0% in Q2, while the services sector also shrank at a slower rate (Q3: -8.4%; Q2: -13.4%).
Looking ahead, the outlook is shrouded in uncertainty: The external backdrop is gradually improving, but the reimposition of lockdowns in Europe and the U.S. has the potential to harm external demand for semiconductor products in the fourth quarter. Furthermore, the ongoing impact of the pandemic on international travel and tourism will continue to weigh heavily on the services sector. Accordingly, the Ministry of Trade and Industry narrowed its 2020 GDP forecast to between a 6.5% and 6.0% contraction this year (previously forecast: 7.0% and 5.0%) and predicted growth of between 4.0% and 6.0% in 2021.
Regarding the outlook, Irvin Seah, economist at DBS Bank, commented:
“The economy is on the mend. […] Growth improvement in regional markets such as China will be crucial, and likely to be sustained if expansionary fiscal and monetary policies remain intact. The new Biden administration could potentially provide hope and more certainty to the US-China relationship, which will be beneficial to small and trade dependent countries such as Singapore. More importantly, like many countries, Singapore’s near-term economic outlook will also depend on how the Covid situation evolves heading into 2021.”
Moreover, Barnabas Gan, economist at the United Overseas Bank, sees a strong rebound in 2021:
“The latest GDP data in 3Q20 further confirms that Singapore’s economy has been improving since the trough in 2Q20, led primarily by the manufacturing sector. Should the pace of recovery be sustained into 2021, Singapore’s economy should revert to positive growth, and comfortably clock an average growth of 5.0% in 2021.”
Author: Stephen Vogado, Economist