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1Q2021 GDP growth a 'pleasant surprise', but further uncertainties abound

Felicia Tan
Felicia Tan5/28/2021 07:00 AM GMT+08  • 5 min read
1Q2021 GDP growth a 'pleasant surprise', but further uncertainties abound
Given the growing uncertainty, economists are largely keeping their full-year 2021 forecasts intact for now.
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The magnitude of Singapore’s GDP growth in the first quarter of this year was a “pleasant surprise” for some economists. However, given the growing uncertainty, they are largely keeping their full-year 2021 forecasts intact for now instead of further upgrading their estimates.

On May 25, the government announced that the economy grew 1.3% y-o-y in 1Q2021, better than the 0.2% flash estimates put out a month earlier. The Ministry of Trade and Industry (MTI) says the current full-year forecast of 4%-6% stands, but will review the numbers in August, pending “more data” and “greater clarity” amid the uncertainty arising from the resurgence of Covid-19 cases.

From the perspective of Jamus Lim, associate professor of economics at Essec Business School Asia-Pacific, the economy has had to brace for potential hit in 2Q2021 from the Phase Two (Heightened Alert) measures.

Given the low base effect, he expects 2Q2021 to remain positive. However, he warns it would be “foolhardy to venture a prediction beyond 2Q2021, because of the enormous uncertainty over whether a new Covid-19-related shock might present itself”.

This is why I believe the government has refrained from revising their official growth forecast. That said, I am quietly optimistic that, conditional on no new restriction measures, we will fall on the upper end of the 4%-6% range, with even a small possibility of a minor beat,” he says.

Lim expects 2021 to remain positive due to the “extraordinary” fiscal support last year, which he believes will take root and percolate further and wider, thereby setting up Singapore’s economy for a more durable recovery. Singapore’s export-oriented economy is also expected to catch the tailwind from the wider recovery worldwide, including in the US and China.

On the back of the higher-than-expected 1Q2021 figure, economists from Bank of America (BofA) Securities, DBS Group Research, OCBC Treasury Research, and UOB Global Economics and Market Research have kept their GDP growth forecast estimates for the full-year 2021, thanks to a strong showing from manufacturing and services.

BofA’s Mohamed Faiz Nagutha, which has the most optimistic forecast at an above-consensus growth estimate of 8%, sees a “likely” upgrade from MTI in August, and reckons the economic outlook for Singapore will remain “bright”.

“While we acknowledge that a larger outbreak and tighter restrictions are indeed large risks, Singapore remains well-placed to recover strongly, given its links to external demand

and good progress on vaccinations (34% of the population have been vaccinated with at least one dose and 25% fully vaccinated as of May 17),” Nagutha writes.

“While total community cases have not come down decisively, the number of unlinked cases has been receding. Mobility has expectedly taken a hit, but is still much higher than during last year’s circuit breaker. Sustained growth in external sectors will also help to provide a cushion against the expected decline in domestic activities,” he adds.

However, Nagutha warns that the economic recovery in Singapore is likely to be “uneven” despite the overall strong growth, “due both to the sustained outperformance in the external sectors and the setback to domestic services and construction from the recent measures”.

OCBC Treasury Research’s head of research and strategy, Selena Ling, is keeping her 5.5% 2021 full-year estimates for now, as she believes the government still can afford a “wait and see” stance for the time being, before reassessing the situation over the next one to three months.

“There is no rush to recalibrate monetary policy settings at the October monetary policy statement since core CPI (consumer price index) remains comfortably within the 0-1% official forecast range, even as headline CPI is buoyed by low base effects and rising commodity prices,” she notes.

That said, there could be calls from the ground for the government to provide more support measures for the industries that have been hit hard by Covid-19, should the situation remain unchanged.

“As such, additional fiscal measures remain an option on the table, and it is plausible that some existing measures like the Jobs Support Scheme (JSS) for Tier 1 industries and the Temporary Bridging Loan, etc, would be extended further, but a more targeted approach is likely to remain the main state of play this year,” she says.

However, there are downgrades too. For one, JP Morgan’s Ong Sin Beng has lowered his growth estimate for full-year 2021 GDP growth to 7% y-o-y, from 7.8% y-o-y, on the back of the tightening measures and reversion to Phase Two (Heightened Alert).

“Cross-border travel restrictions, especially for foreign migrant workers, are expected to remain stringent, with their knock-on effects on construction and other industries reliant on foreign workers,” he says.

“Thus, the broader macro narrative of a variegated recovery, with manufacturing benefitting from external demand amid weakness in the non-tradeable sectors, remains a key driver of the patchy recovery that is underway and apparent also in the 1Q2021 GDP outturn,” says Ong.

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