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Mon, Jan 4, 2021 – 8:11 am
UPDATED Monday, January 4, 2021 – 12:56 pm
SINGAPORE’s economic contraction slowed in the fourth quarter of 2020, compared to the previous one, and the full-year contraction reached 5.8 percent, according to advance estimates from the Ministry of Commerce and Industry (MTI) on Monday.
Gross domestic product (GDP) contracted 3.8 percent in the fourth quarter, an improvement from the 5.6 percent contraction seen in the previous quarter. This turned out to be better than private sector economists’ expectations of a 4.7 percent drop, according to a Bloomberg survey.
However, on a seasonally adjusted quarter-on-quarter basis, the economy grew 2.1 percent, slowing from the 9.5 percent expansion recorded in the third quarter.
This brings Singapore’s full-year 2020 GDP contraction to 5.8%, which is slightly better than the official contraction forecast of 6 to 6.5%.
As in the third quarter, growth was primarily driven by the manufacturing sector, which expanded 9.5 percent in the fourth quarter, leading to an overall growth of 7.1 percent for the full year. This was mainly supported by production expansions in the electronics, biomedical manufacturing and precision engineering groups, and these outpaced production declines in the general manufacturing and transportation engineering groups, MTI said.
Barnabas Gan, an economist at UOB, said: “Despite seeing a full-year contraction in 2020, Singapore’s economy has continued to improve from the low of the second quarter of 2020.
“We remain encouraged by continued manufacturing expansions in November 2020, where industrial production rose 17.9 percent year-on-year at the time and beat market expectations of 14.1 percent year-on-year.”
Among service industries, the information and communications sector, finance and insurance, and professional services in general was the only one to see growth in the fourth quarter since the “switch” occurred in the second.
Looking ahead, Citi economists said the recovery is likely to be gradual and uneven.
“Despite the shift to Phase 3 reopening, a further recovery in domestic demand is likely to be limited by continued weakness in tourism and the large slack in the labor market. We are also on the lookout for possible new waves of infection in the community, or even reverse the reopening process, “said Citi economists Kit Wei Zheng and Ang Kai Wei.
They added that business sentiment remains pessimistic, according to official polls, while external final demand from the US and Europe could face downside risks from new waves of Covid-19 infection.
However, this could improve later in the year, with more widely available vaccines. With this, they expect the full annual GDP of 2021 to expand by 5 percent, putting their prediction near the middle of the official forecast of 4 to 6 percent.
Brian Tan, a regional economist at Barclays, said it is revising its GDP growth forecast for 2021 from 4 to 4.8 percent.
“While the recent relaxation of social distancing measures does not significantly alter the economic outlook, the rapid procurement and distribution of Covid-19 vaccines is an encouraging positive surprise,” Tan said.
Maybank Kim Eng’s economists are more pessimistic, expecting growth of 4.5% in 2021, as easing border controls is at “snail’s pace.”
“The recovery in 2021 will be conditional on services, which remain sluggish, while manufacturing has already increased strongly in 2020,” said Maybank economists Chua Hak Bin and Lee Ju Ye.
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