The progressive resumption of economic activities since the second half of 2020 is set to see Singapore’s economy growing “strongly” in 2021 and 2022, say economists at the <a href="https://www.theedgesingapore.com/tags/asean3-macroeconomic-research-office-amro" target="_blank">Asean +3 Macroeconomic Research Office (AMRO)</a>.

The macroeconomic watchdog is expecting the city-state’s GDP to expand by 6.5% this year, before moderating to 4% in 2022. Last year, the republic’s GDP contracted by 5.4%, as several economic activities ground to a halt in a bid to curb the spread of the coronavirus infections.

AMRO says the higher levels of growth in 2021 and 2022 will be driven by robust employment, domestic spending and external demand over the shorter-term.

In the long-term it points at a recovery in the tourism and hospitality sector as growth drivers. However, recovery for these sectors is expected to remain slow, no thanks to the continued restrictions on cross border travel.

<hr/>See: <a href="https://www.theedgesingapore.com/capital/asean/growth-asean-china-japan-and-korea-expected-slow-61-2021-amro" target="_blank">Growth in Asean, China, Japan and Korea expected to slow to 6.1% in 2021: AMRO</a><hr/>

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AMRO’s optimism comes despite challenges – both domestically and abroad – such as supply chain disruptions, inflation and a possible resurgence in Covid-19 cases, says economist Justin Lim.

He notes that renewed waves of infections and a delay in vaccine roll-outs in regional economies pose challenges to Singapore’s growth for they may result in a further lockdown and in turn affect domestic consumption and production.

“The recovery in Singapore’s high-contact services sectors will be impeded with knock-on effects on the labour market,” he added.

Such a phenomenon could cause further financial distress among vulnerable businesses both locally and abroad, and thus affect the non-performing loan ratios at local banks. Non-performing loans refer to borrowings that paid late or not likely to be repaid.

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“Rising financial distress among the more vulnerable businesses in Singapore and abroad can lead to a deterioration in banks’ asset quality, although the increase in banks’ provisions and strong capital buffers are expected to help mitigate the rising credit risk,” AMRO’s economists explain.

Another issue facing Singapore and several countries is further disruptions to global supply chains.

With Singapore being heavily reliant on external trade, Lim says that bottlenecks in trade flows is “not ideal” for the republic in the longer-term.

The good news, for now is that more ships have been diverted to Singapore’s port due to port congestions elsewhere.

Lim reckons that the republic has been managing this well, especially by expanding its port capacity in Tuas and opening the port ahead of schedule.

Still, AMRO’s chief economist Hoe Khor Ee says that supply disruptions have caused an increase in oil and food prices. These have inadvertently brought on the problem of inflation.

“Inflation is rising and it’s not unexpected because the economy is bouncing back,” said Khor. He is expecting inflation levels in Singapore to rise to around 1% to 2% this year.

For more stories about where money flows, <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rhb-sees-frasers-centrepoint-trust-potential-contender-mercatus-assets?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>click here for Capital Section</a>

“These are still relatively low numbers because there has been a relatively low base, and there has been a lot of disruption so not surprisingly, we should see higher for certain products,” he noted.

Khor is also expecting wages to rise this year, in tandem with the improvement in the labour market. This may eventually be passed on to consumers in the form of higher costs of services, he noted.

In any case, Khor does not see the rise in Singapore’s inflation level as a problem, since it is still relatively lower than that seen abroad.

For more stories about where the money flows, <a href="https://www.theedgesingapore.com/section/capital" target="_blank">click here for our Capital section</a>

He notes that the Monetary Authority of Singapore’s (MAS) monetary policy stance remains “accommodative” at current levels and completement the nation’s fiscal policy measures.

AMRO’s suggestion is for the authorities “to remain flexible and be prepared to extend future support in the event of a resurgence in infections or if growth falters”.

For now, Khor says that the pandemic has “not changed the attractiveness of Singapore as a base for [foreign investors wanting] a base for setting up their company headquarters and expanding regionally”. This is as “capital inflows remain strong and investors are keen to invest,” he explained.

Singapore economy expected to grow strongly in 2021/2, despite risks from resurgence of Covid-19 infections: AMRO

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