Light at the end of the tunnel? Singapore to maintain 5.8% GDP growth forecast

The threat of of COVID-19 variants attacking key trading partners may still weaken recovery, advises Fitch.

Singapore continues to recover from its 5.2% contraction in 2020, as Fitch Solutions maintains its forecast of 5.8% gross domestic product (GDP) growth in 2021.

According to Fitch, the relatively strong performance of 0.2% YoY growth in Q1 2021, which outperformed consensus estimates of -0.2% YoY growth, gives confidence in its view that Singapore will see unusually strong growth figures off a very low base in 2020 during which the economy contracted by 5.2% in real terms.

“Broadly, we expect all expenditure components except government consumption to contribute positively to growth. Private consumption and fixed investment are likely to pick up as slack in the economy dissipates along with progress in vaccination campaigns around the world, supported by residual the government’s budget measures to boost these two segments,” Fitch said.

Additionally, net exports will likely benefit more strongly from China’s recovery in 2021, as the decoupling effect of the different timings at which the pandemic disrupted the Chinese and other Asian economies dissipates.

Fitch said that government consumption will likely contract as the government seeks to rationalise spending after the historic deficit incurred in 2020 to support the economy against Covid-19.

The commentary also said that with the government’s continued support for businesses to continue investing in preparation for the post- pandemic economy, Fitch expects to see investment return to positive growth in 2021 as well, with a forecast growth rate of 2.5%.

But recovery is still threatened by possible rises in COVID-19 cases in other countries especially key trading partners such as China.

“The main risk to our outlook remains the delays to vaccination programmes around the world, which leaves openings for further resurgences in infections. If this affects more key trading partners of Singapore then the strong recovery that we currently expect in net exports could be weakened, while the prospects for a revival of travel will be diminished. Furthermore, there remains the risk of a variant of Covid-19 against which vaccines currently in the market offer less effective protection,” Fitch said.