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Analysts keep 2021 GDP estimates unchanged even after increase in official GDP forecast

Felicia Tan
Felicia Tan8/12/2021 12:51 PM GMT+08  • 8 min read
Analysts keep 2021 GDP estimates unchanged even after increase in official GDP forecast
The upgrade, however, comes as no surprise to some.
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Economists from DBS Group Research, JP Morgan, Maybank Kim Eng, OCBC Bank, RHB Group Research and UOB have kept their estimates for 2021’s GDP unchanged after the Ministry of Trade and Industry (MTI) announced that it has upped its growth forecast range to 6% to 7% for the year, from its previous range of 4% to 6%.

See: Singapore's economy grows by 14.7% in 2Q21; 2021 GDP range upgraded to 6% and 7%

DBS’s senior economist Irvin Seah has maintained his growth forecast of 6.3% for 2021, which factors in a slower growth momentum in 2H2021 even as the economy remains “well on track” to meet his current estimate.

“Although the stronger than expected growth in 1H2021 could post slight upside risk to our forecast, it doesn’t warrant an immediate upward revision because of the potential downside risk from the second round of Phase 2 (Heightened Alert) in July to August, which is expected to affect 3Q2021 growth,” Seah writes in an Aug 11 report.

He notes that the key manufacturing sector remains as the key contributor to growth for the country’s GDP, even though the latest set of figures indicate that the growth momentum for the sector is waning.

To be sure, the manufacturing sector posted a 2.5% q-o-q contraction in the 2Q2021 after seeing sequential growth for two quarters, from 2Q2020 to 1Q2021.

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“Existing shortages of semiconductor chips may put a lid on the pace of expansion in the electronics cluster even though global demand for high end electronics parts and components remains strong.”

“However, the manufacturing sector will continue to remain in expansion mode amid a resilient global recovery phenomenon,” he adds.

The crunch in manpower remains the biggest obstacle to the full recovery of the construction sector albeit a sharp growth of 106.2% y-o-y due to the low base from the same period the year before.

See also: Singapore’s manufacturing output decreases by 0.8% in October, marking first y-o-y contraction since Sept 2021

“In absolute terms, the value-added of the sector is still significantly below pre-Covid level,” writes Seah, who adds that existing border control measures will continue to weigh on the sector until the reopening of the economy.

Performance in the services sector remains “mixed” despite the 10.3% y-o-y expansion due to the re-implementation of the Phase 2 (Heightened Alert) measures between July and August.

“Apart from financial services, there are also emerging signs of a broad-based slowdown in momentum (in q-o-q seasonally adjusted basis) in the other services industries. Moreover, tourism related industries such as aviation and accommodation remain weighed down by the ongoing Covid-19 situation, particularly with the severe infection rate in many of the key tourism markets in the region (e.g., Indonesia, Malaysia and Thailand),” he writes.

To this end, a high rate of vaccinations in Singapore and the government’s approach towards the reopening of the economy will be key to its economic performance in the next 12 months.

“Progress in this regard has been encouraging,” says Seah.

JP Morgan analyst Ong Sin Beng has maintained his full-year growth forecast at 6.5% y-o-y as he deems that recovery will remain uneven for now.

“Although cross-border travel restrictions might be eased towards the year end, demand is not expected to return rapidly, given the cautious pace of reopening and uncertainty around the more infectious strains of the Covid-19 virus,” Ong writes in an Aug 11 note.

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He adds that the Monetary Authority of Singapore (MAS) is likely to keep its policy setting of a flat S$NEER slope unchanged in October, although “it may tolerate some drifting up of the NEER within the band”.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye has kept their GDP estimates for 2021 unchanged at +6.8%, above the mid-point of MTI’s revised forecast range.

“We forecast GDP growth to remain slightly above potential at +3.5% in 2022, as the services and construction sectors recover more strongly with the easing of lockdowns and border controls,” they write in an Aug 11 report.

Like DBS’s Seah, Chua and Lee expect the manufacturing sector, as well as exports to continue driving the economic recovery for the rest of the year, referencing Enterprise Singapore’s (ESG) raised 2021 forecast for non-oil domestic exports (NODX) to 7% to 8% from 1% to 3%.

Services are also likely to “pick up speed” with the latest economic reopening, they note.

“Domestic services such as retail, food & beverage, and arts, entertainment & recreation will improve with the easing of lockdowns. Tourism and transport services will be the last to normalize as borders controls remain tight and many countries, including China, still have restrictions on outbound travel,” they add.

OCBC Bank’s head of treasury research and strategy Selena Ling has, too, kept her GDP growth forecast for 2021 at 6.7% y-o-y.

This, she says, is followed by a normalised growth of 2% to 4% for 2022.

“A faster pace of reopening and relaxation of restriction measures and potential resumption of some international travel later this year would pave the way for a more stable recovery trajectory and hence room for policy normalisation down the road,” she writes in an Aug 11 note.

Ling adds that despite the “bumpy start” to the 2Q2021 due to the return of the Phase 2 (Heightened Alert) measures, this should be mitigated by the relaxed measures that will be implemented from Aug 10 onwards.

That said, the revised full-year GDP growth forecast from the MTI “did not come as a surprise” due to a gradual recovery in the 2H2021, supported largely by outward-oriented sectors and the progressive easing of domestic and border restrictions.

“For the Singapore economy, outward-oriented sectors like manufacturing, wholesale trade, finance & insurance and infocomms are expected to remain robust, whereas aviation and tourism-related sectors may remain sluggish amid unpredictable Delta variants,” she writes.

In addition, “the S$NEER is currently trading around 0.45% above parity this morning with a marginal tick higher post-GDP announcement, suggesting that the official growth forecast upgrade was already largely discounted”, she notes.

Ling has also kept her headline and core inflation forecasts for 2021 at 1.5% and 0.7% y-o-y respectively, with 2022 likely to come in at 1.5% and 1.0%.

“While core CPI has remained fairly subdued for now, nevertheless, we do expect that the shift to a Covid-resilient economy after achieving local vaccination targets (namely 80% of the population by early September) could support more robust consumer spending and fewer widespread Covid-related restriction measures going forward.”

The Singapore research team at RHB has also kept its GDP growth forecast of 5.8% for 2021.

"The gradual re-opening of the economy faces several challenges and is unlikely to be a smooth process in 2H2021," writes the team in an Aug 11 report.

"The construction and tourism related sectors are expected to have a slow pace of recovery. On the supply side, the manufacturing and trade-related services sector could remain resilient but face challenges from labour supply," it adds.

Finally, UOB economist Barnabas Gan has kept his growth outlook for 2021 at 6.5%.

To him, Singapore’s economic prognosis remains resilient on the back of the strong vaccination rates, along with its strong export and manufacturing performance.

However, Gan remains concerned on how Covid-19-related risks may evolve in the months ahead for Singapore as well as its key trading partners.

Highlighting the better-than-expected performance by the services and construction clusters, Gan notes that they have benefitted from the “very low base print” in 2020.

“Despite the rebound, the pace of growth for some of the services sectors did not fully offset the contraction in 2Q2020,” he writes.

The manufacturing sector remains to be the key supporter of the overall economic recovery due to the resilient global demand for semiconductor-related products.

To be sure, the sector, which grew by 17.7% y-o-y, stood in line with Gan’s expectations, after accounting for the multi-year record expansion of 27.5% y-o-y in June’s industrial production figures.

In a pre-written statement, ESSEC Business School’s Associate Professor of Economics, Jamus Lim says he expects overall trade performance to “continue its strengthening, as above-trend patterns in global trade continue this quarter”.

He adds that he expects MAS’s upcoming Survey of Professional Forecasters to “corroborate” with MTI’s advance GDP estimate.

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He notes that the ministry’s new estimates point to a “sharp increase in y-o-y growth” owing to a very low base from the Circuit Breaker implemented in 2020, albeit a “much shakier slowdown in q-o-q growth) due to the recently-implemented Phase Two (Heightened Alert) measures.

“Sectorally, industry has performed well, and should continue to do so this quarter (buoyed by a robust global environment). However, pandemic-exposed sectors—especially accommodation (which revealed a surprisingly positive print in the first quarter), food and beverage (F&B), and real estate—are likely to pull back,” he writes.

The transportation sector may surprise on the upside, which reflects global trends in shipping costs, which shot up since the 1Q2021, he notes.

“Looking to the rest of the year, I expect a solid rebound across the economy (with perhaps the exception of accommodations), as the domestic economy unwinds and opens up substantially in response to the substantial easing of restrictions by the government, come September,” he adds. “In terms of the external economy, I expect overall trade performance to continue its strengthening, as above-trend patterns in global trade continue this quarter. That said, it would be unsurprising to see a meaningful slowdown in regional trade, owing to the difficulties posed by the less-well-managed spread of the delta variant across Asean, and especially with the lockdown across the Causeway.”

Photo: Bloomberg

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