Coronavirus: Singapore exits recession as economy grows 1.3%

Singapore’s economy grew for the first time after three consecutive quarters of contraction, in a sign the city state is recovering from last year’s pandemic-induced recession.

But with tighter social distancing measures having been introduced this month amid a recent increase in domestic infections , analysts say it is unclear whether the growth in the first quarter of this year can be sustained.

The Ministry of Trade and Industry on Tuesday (May 25) said the economy grew 1.3 per cent between January and March on a year-on-year basis, a slight upwards revision from its advance estimate of 0.2 per cent. On a quarterly, seasonally adjusted basis, the Singapore economy grew 3.1 per cent. Singapore’s export-oriented and trade -dependent economy is often seen as a bellwether for global growth.

The improvement came on the back of a stronger-than-expected performance in the manufacturing sector, which grew 10.7 per cent year on year. This was driven by output expansions in the electronics, precision engineering and chemicals clusters, the trade ministry said.

The ministry maintained its forecast for full-year GDP growth of between 4 and 6 per cent in 2021, but added that it would review it next quarter when there is greater clarity over global and domestic economic situations. Last year GDP contracted 5.4 per cent.

Economists had previously been hopeful that growth in the second quarter of this year would be more robust but recent events have dampened their optimism.

After months of near zero coronavirus cases, Singapore saw a sharp increase in domestic infections from the end of April with cases of the B. 1.617 variant, which was first discovered in India , spreading in the community.

Authorities this month imposed stricter measures, limiting social gatherings to two people and banning dining in at food places. Residents are also being urged to work from home and classes for students have been moved online.

While these measures, set to expire on June 13, are not as strict as an earlier partial lockdown in which most retail shops were closed and no social gatherings allowed, they are expected to dampen consumer sentiment and the economic recovery.

“It’s a setback,” said Selena Ling, head of treasury research and strategy at OCBC Bank.

But Ling added that people had adapted to work-from-home arrangements and online shopping, so disruptions to businesses should not be as acute as last year.

In the second quarter of 2020, Singapore’s economy fell 13.3 per cent year on year.

With the current measures more calibrated, Song Seng Wun, economist at CIMB Private Banking, said the impact would probably be greater in consumer-facing businesses, such as the food and drinks and services sectors.

Firms in construction would be hit too, said Ling, referring to how the government had this month tightened border restrictions and suspended entry applications for workers from higher-risk countries. “This means the manpower constraint on certain sectors like construction, marine and process is even more binding,” she said.

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Singapore’s tightened measures would also hit consumer and business confidence, said Song, noting that there had been rumours of a complete lockdown. This speculation comes despite policymakers stressing that Singapore is better positioned to deal with the current wave. “Nonetheless, it is at the back of many people’s and businesses’ minds,” he said.

Song said the problems facing the planned travel bubble with Hong Kong, which was set to begin on May 26 but was postponed for a second time due to the increase in infections, showed how hard it would be for borders to be opened.

Ling said Singapore’s recovery trajectory would depend on whether the current measures would extend beyond June 13 and into the third quarter. She said on the present trajectory Singapore would still be able to grow between 5 and 6 per cent for the full year.

Gabriel Lim, permanent secretary at the trade ministry, noted that while the recent tightening of restrictions would affect segments of the economy, the broader economy should still see a recovery this year. He stressed that the current suite of measures were “quite different” from the partial lockdown last year.

“Many more parts of the economy are open. In fact, running at full steam,” he said, citing the manufacturing industry, for example.

Meanwhile, the ministry said there were other significant downside risks, pointing to how countries around the world have experienced waves of infections, with the emergence of more transmissible virus strains and delays in vaccine roll-outs.

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“These resurgences, as well as the countries’ public health responses to them, will inevitably affect their economic growth,” it said, but added that given the experiences last year, it hoped that countries would be able to avoid repeated blanket lockdowns.

This was also echoed by Ling, the economist, who described the resurgence of Covid-19 cases across Asia as worrying.

Various places in the region, following early successes in containing the virus, have recently seen fresh waves. Taiwan is witnessing its worst community outbreak, recording more than 500 new cases on Monday alone, while Malaysia has imposed new movement restrictions.

“This may in turn weigh on external demand and confidence. However, most of the economic activities have not been curtailed despite the tightening of restrictions so hopefully the impact on the overall economy will be more muted,” she said.

“That said, the optimism from the first quarter has to be tempered from here.”

This article was first published in South China Morning Post.