Recovery from COVID-19 drives GDP rise in Q1

It has grown 0.2% YoY in Q1 following contractions from three previous quarters.

As Singapore continues its recovery from COVID-19, the economy has seen a 0.2% YoY growth in Q1 2021 – a turnaround from the contractions recorded in the three previous quarters.

Advanced estimates from the Ministry of Trade and Industry (MTI) shows that the recorded growth is the first since the pandemic hit in 2020.

“While we are cautiously optimistic, many downside risks remain which we will have to pay close attention to,” Minister for Trade and Industry Chan Chun Sing said in a Facebook post following the release of the GDP.

The recorded GDP is in line with the forecast of OCBC Bank, but slightly below Morgan Stanley’s expectation of 0.5% YoY growth.

According to Moody’s Analytics, the improved performance came on the back of an effective rollout of Singapore’s mass vaccination programme, and the resumption of more activities in Q1 compared to the previous quarter, as domestic cases of COVID-19 have been largely under control in Singapore.

The three key sectors—manufacturing, construction, and services—each registered positive sequential growth as more activities resumed on Singapore’s phased reopening.

Singapore’s manufacturing activity was the main driver for the economy’s recovery in Q1, having risen by 7.5% YoY after a revised 10.3% expansion in the previous quarter. The rise was aided by output expansions in the electronics, precision engineering, chemicals and biomedical manufacturing clusters.

Meanwhile, the construction sector continued to contract, albeit at a slower rate of -20.2% YoY, as activities in the private and public sectors picked up. This rate was better than the contraction of 28.3% that OCBC Bank expected.

The services sector shrank 1.2% YoY in Q1, weighed down by the wholesale & retail trade and transportation & storage trade sectors, which dipped by 4.1% YoY, following a 6.4% fall previously.

The drop recorded for the sector groups was due to continued weakness in the transportation & storage sector, caused by the impact of COVID-19 on air, water, and land transport segments.

Figure on the services sector was in contrast to OCBC Bank’s forecast of 0.0%.

“The path of the pandemic remains uncertain with the emergence of new variants and the uneven global roll out of vaccine deployment. The multilateral trading system remains under stress as countries prioritise unilateral trade measures in order to protect domestic interests,” Chan said.

Moody’s Analytics noted that Singapore progressively resumed activities after its phase three opening on 28 December amidst permitted social gatherings and capacity limits at public spaces.

“Risks are still weighted on the downside, as renewed lockdowns and delays in vaccine rollouts in major trade partners remain very real threats to the country’s economic recovery. Despite the downside risks, the uplift from the manufacturing sector will offset slower growth in other areas such as construction and services,” Moody’s Analytics associate economist Eric Chiang said.

Meanwhile, OCBC Bank mentioned that an upgrade to the official 2021 GDP growth forecast range would likely only come earliest after Q2.

“Going ahead, we expect to see an outsized GDP rebound of around 15% YoY due mainly to the low base last year during the circuit breaker period, with manufacturing, services and construction sectors all likely to register double-digit YoY growth as well,” OCBC Bank head of treasury research & strategy Selena Ling said.

Ling added that base effects will fade and the growth in H2 this year will come back down to earth.

Morgan Stanley also expects the economy to accelerate to above-trend growth of 7.4% YoY given a combination of low base effects, the vaccine rollout gathering pace, and spillover from strong global and US growth.

“By the bank’s estimates, the Singapore economy, having already recovered close to its pre-COVID-19 level in Q1, will likely decisively surpass pre-Covid-19 GDP levels in Q2,” Morgan Stanley analysts Zac Su and Deyi Tan said.