Government should remain flexible if recovery loses momentum: AMRO

The Singapore economy expects a strong rebound but the outlook still remains uncertain.

Singapore’s economy is expected to rebound strongly in 2021 after a sharp contraction last year due to the COVID-19 pandemic, according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO).

AMRO led a policy meeting with the government to discuss the pandemic’s impact on the economy, policy support, and measures to address the challenges in the post-pandemic new normal.

AMRO’s lead economist, Dr. Chaipat Poonpatpibul said the economy is expected to have a turnaround and grow by 6.1% in 2021. 

“Following a 5.4 percent contraction last year. The swift, sizable, and more targeted policy measures have effectively cushioned the impact of the pandemic and supported the recovery. Further support would be needed if the recovery falters due to a resurgence in local and overseas infections,” Poonpatpibul said.

Despite a strong rebound, AMRO said that the economic outlook is uncertain, with an uneven recovery across sectors. 

AMRO said that the manufacturing sector is expected to grow strongly, benefiting from the global recovery and robust electronics demand. Meanwhile, the recovery in tourism-related sectors will remain slow due to the ongoing pandemic containment measures and slow pace of vaccination in most countries.

Short-term threats to growth remain renewed waves of infections in Singapore and abroad, and delays in vaccine rollouts whilst in the long-term a rapidly aging population places upward pressure on fiscal spending in healthcare and social welfare services. 

AMRO commented that Singapore's fiscal policy remains ample, but urged authorities to remain flexible and prepare to extend further support if the recovery loses momentum with focus on job creation and reskilling of displaced workers.

In its policy recommendations AMRO also suggested the accommodative monetary policy stance should be maintained in view of the continuing uncertainties in the outlook, and low inflationary pressures. Monetary policy should remain accommodative to complement fiscal policy until recovery is entrenched.

“Singapore’s debt relief, credit support, and bank regulatory easing measures have helped households and businesses while safeguarding financial stability. A gradual exit from the broad-based debt relief scheme is appropriate, in line with the steady recovery in most sectors. An extension of debt relief should be considered for hard-hit but still viable businesses.,” it added.