Singapore’s economy may just stage a better-than-expected recovery this year, after posting its worst recession on record in 2020.

The Monetary Authority of Singapore (MAS) estimates that the republic’s Gross Domestic Product (GDP) “could exceed” 6%, or the upper end of the official forecast range for this year, barring a setback in the global economic recovery or surge in the locally transmitted coronavirus infections.

The improved outlook follows stronger external demand, the central bank highlighted its half-yearly macroeconomic review update on Apr 28.

“There are upside risks to growth such as from a stronger-than-anticipated upturn in the global electronics cycle, but these are accompanied by downside risks pertaining to the mutation of the virus and efficacy of vaccination,” MAS explains.

However, it cautioned that growth outcomes for different sectors have become “more disparate than previously envisaged”.

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“The robust GDP estimate belies continued unevenness in the dispersion of the recovery and is accompanied by elevated uncertainty,” MAS stresses.

The manufacturing sector – which has been a driver of Singapore’s economy in the past year – is expected to continue growing this year as the upswing in the global technology cycle drives demand for electronics production.

Conversely, the prognosis for sectors such as air transport and accommodation – which were among the worst hit by the pandemic – appears bleak. The demand for such services have somewhat deteriorated amid the rise in Covid-19 cases and the emergence of more contagious strains.

"Accordingly, Singapore's air transport industry is expected to continue operating at less than half of pre-Covid-19 levels even by year-end,” the MAS estimates.

“Domestic tourism will provide a thin lifeline to the accommodation and arts, entertainment and recreation industries, but revenue from such a short-term pivot will not be sufficient to compensate for the diminution of international travel”.

Meanwhile, construction activity – which came in at an all-time low last year, is likely to pick-up thanks to the backlog of projects. However, the sector faces challenges from manpower shortages and rising material costs in the near-term, MAS flags.

Even so, it says that the improving labour market conditions and consumer sentiments could boost the retail and food beverage sectors.

The policy support rendered to resident workers is likely to have facilitated the continued strong recovery of resident employment in 4Q2020, MAS notes, adding that recovery should continue at a steady pace in the quarters ahead.

See: Singapore's unemployment rate eases to 2.9% in March, but labour market not fully back to pre-pandemic levels: MOM


This has translated to a decline in the overall slack in the domestic labour market in 4Q2020.

Still, there seems to be some degree of spare capacity in the labour market as indicated by the elevation in resident unemployment despite its easing from its peak in September.

Turning to inflation, both the core and headline gauges edged up in 1Q2021 as the government measures that dampened essential services inflation for most of 2020, ceased to do so this year.

Both metrics are expected to step up in the months ahead on the back of a sharp recovery in global oil prices and the low base effects in the second quarter of 2020, says MAS.

It adds that the pace of increase in inflation should ease in the second half of this year, due to the “still-contained external and domestic cost pressures”.

To this end, the central bank is expecting core inflation to average between 0% and 1% this year while headline inflation is forecast to come in between 0.5% and 1.5%.

Against this backdrop, it is expecting business cost pressures to remain constrained.

While resident wages are projected to grow at a slightly faster pace this year, the elevated resident unemployment rate coupled with the labour market slack should restrain overall wage cost pressures, it noted.

In line with this, the central bank kept its neutral stance on the Singapore dollar nominal effective exchange rate (S$NEER) in its Monetary Policy Statement on Apr 14.

See: MAS maintains Singdollar policy stance in Apr, but raises inflation forecast for 2021


It notes that an accommodative policy stance remains appropriate for now, as it will complement the strong fiscal policies aimed at narrowing the output gap and ensuring price stability in the long term.

Going forward, a more muted relationship is expected between the response to Covid-19 and economic activity. This will come as firms and individuals gain greater experience on how to operate during a pandemic, says MAS.

Some semblance of this is evident with the global economy set to pick up pace from the second quarter of this year to expand by 6.2%.

This follows the substantial fiscal stimulus expected to take effect in several economies, and the faster-than-expected rollout of vaccination programmes.

Collectively, these two developments have helped boost business and consumer confidence in the near to medium-term, says MAS.