Singapore’s gross domestic product (GDP) contracted by 5.8% for 2020, according to advance estimates released by the Ministry of Trade and Industry (MTI) on Jan 4.

The latest figures outperformed with MTI’s November 2020 estimates of growth contracting between 6.5% and 6%.


See: Decline in Singapore's economy comes in better than expected at -5.8% in 3Q2020


For the 4Q2020, the country’s GDP shrank 3.8% y-o-y, registering an improvement from the 5.6% contraction in 3Q2020.

On a q-o-q seasonally adjusted basis, the ministry says the economy grew by 2.1% following the 9.5% expansion in 3Q2020.

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Among the sectors, the biggest plunge came from the construction industry, which contracted by 33.7%, while accommodation & food services, real estate, administrative & support services and other services, as well as wholesale & retail trade and transportation & storage stood at -12.6% and -11.2% respectively in 2020.

For the 4Q2020, the construction industry shrank by 28.5% in 4Q2020 on a y-o-y basis, improving from the 46.2% contraction in 3Q2020.

MTI says the improved performance came on the back of the resumption of more construction activities in 4Q2020 compared to the previous quarter.

Q-o-q, the sector grew by 34.4%, extending the 39.0% growth in the 3Q2020.

The manufacturing sector expanded by 9.5% y-o-y in 4Q2020, extending the 10.8% growth in 3Q2020.

Growth in the sector was primarily due to output expansions in the electronics, biomedical manufacturing and precision engineering clusters.

This outweighed output declines in the transport engineering and general manufacturing clusters.

Q-o-q, the manufacturing sector contracted by 2.6%, down from the 12.6% expansion in 3Q2020.

Among the services sectors, wholesale & retail trade and transportation & storage shrank by 11.0% in 4Q2020, registering a slight improvement from the 11.9% contraction in 3Q2020.

The performance of the sector was mainly weighed down by the trade-related segments such as wholesale trade and water transport, which contracted due to sluggish external demand as global major economies continue to deal with the Covid-19 pandemic.

On a q-o-q basis, the sectors in the group expanded by 1.2%, lower than the 4.3% expansion logged in 3Q2020.

The information & communications, finance & insurance and professional services sectors expanded by 0.2% y-o-y in 4Q2020, reversing from the 0.2% contraction in 3Q2020.

According to MTI, the growth was supported by steady expansions in the information & communications and finance & insurance sectors, despite the contraction in the professional services sector due to slower economic activity.

Q-o-q, the sectors in the group expanded by 2.5%, extending the 2.9% growth in 3Q2020.

In 4Q2020, the accommodation & food services, real estate, administrative & support services and other services contracted by 9.9%, an improvement from the 13.5% contraction in 3Q2020.

The accommodation segment continued to shrink amid weak tourism demand while the rest were weighed down by constraints arising from the safe management measures.

Q-o-q, the sectors in the group grew by 4.5%, slower than the 11.7% growth in 3Q2020.


See also: Singapore's GDP remains in the red with 7% slump in 3Q2020: MTI and Singapore 2Q20 GDP slumps by 12.6% according to flash data: MTI


"Looking ahead, with the vaccinations underway both globally and domestically (notwithstanding the new strain of Covid infections) and the transition to Phase 3 for the S’pore economy, we expect growth to stabilise and improve to around 4-6% y-o-y in 2021," says Selena Ling, head of treasury research and strategy at OCBC Bank.

Ling also predicts that global market sentiments will remain "buoyant" and that the prospect of a US fiscal stimulus may "lend further impetus to the risk-on tone at the start of the new year".

"That said, there may be some moderation in the manufacturing growth momentum in 1Q2021 given that the first quarter is traditionally slower due to the festive Chinese New Year holidays and that the global restocking push may be subsiding," she adds.

"2Q2021 GDP growth will see a big surge due to the very low 2Q2020 base (-13.4% y-o-y) resulting from the earlier Circuit Breaker period, and if vaccination efforts proves effective, both business and consumer confidence is likely to improve further. The timing of when international borders re-open remains key to when the wholesale & retail trade, accommodation & food services, and other services will recover."

On Budget 2021, which will be announced on Feb 16, Ling believes that it "is tipped to remain supportive and be modestly expansionary, but will likely stand in the shadow of the unprecedented policy support provided in 2020".

"Market hopes for continued fiscal support for key hard-hit sectors like aviation, tourism and hospitality-related industries, but there may be greater recalibration of support levels in order to prioritise repositioning and rebuilding for a post-Covid environment," she says.

"MAS policy is likely to remain accommodative through 2021 by maintaining the S$NEER policy stance at neutral slope at least through April 2021," she adds.

The way UOB economist Barnabas Gan sees it, the construction and services sectors may continue to contract in 1Q2021 at least.

"The uncertainties surrounding COVID-19 and its negative impact on global trade winds will likely continue to stay for the foreseeable future, which in turn may inject headwinds against Singapore’s trade and transport sectors," says Gan. "In the same vein, the slow restart of the construction sector could mean that time is needed for this sector to return to pre-Covid-19 levels."

To this end, Gan maintains his estimates that Singapore's GDP will expand by 5.0% in 2021, against MTI's outlook of between +4.0% to +6.0%.

"We recognise that the global backdrop will likely be favourable for Singapore’s economy for the year ahead," he says.

"This includes the signing of the RCEP which Singapore will likely benefit immensely, while US president-elect Joe Biden may take on a more constructive and multilateral approach in trade with other countries."

"Singapore’s position in producing and supplying biomedical products and supplies especially during this Covid-19 pandemic will continue to lift overall manufacturing activities into 2021," he adds.

On the advance figures released, DBS's senior economist Irvin Seah says the figures for 4Q2020 came in "better than expected" and that the estimated full year contraction of -5.8% is slightly better than DBS's expectation of -6.0%.

"The key takeaway is that the economy is on a recovery path after the strong rebound in 3Q and the trough registered in 2Q. However, the pace of growth has slowed, as this V-shaped recovery turns into a square root shaped trajectory," he says in a flash report on Jan 4. 

"We see this a part and parcel of a normalisation process. As economic activities gradually resume to norm, growth momentum will naturally revert to a more sustainable pace," Seah adds.

The manufacturing industry will continue to remain a key driver of growth in 2021, he notes. Seah also expects the construction and services industries to catch up in 2021, especially the latter which has borne the brunt of the pandemic.

"We expect a gradual improvement in services growth in 2021 although the pace of recovery will be uneven across various services segments," he says.

"Nonetheless, the economy is on the mend, but growth momentum will remain tepid and uneven in this K-shaped recovery," he adds. "GDP growth figures in the first half of this year will be highly volatile, due to the base effects last year. Yet, the recovery should gain momentum in the second half of the year, assuming that vaccines will become available and global travel can safely resume thereafter."

The -5.8% full-year GDP growth is also in line with Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye's estimates of -5.7%.

To Chua and Lee, they foresee the manufacturing sector to continue growing in 2021 but at a slow pace of around +3.2%, they write in a report dated Jan 4.

"Manufacturing defied recession in 2020, staging a +7.1% jump (vs. -1.4% in 2019) on high demand for semiconductors & related equipment and pharmaceuticals," they say.

The construction sector, on the other hand, will likely post a "slow recovery" in 2021, say Chua and Lee.

This, they add, is "supported by public residential developments and upgrading works and projects such as the Jurong Lake District and Cross Island MRT Line".

The services sector is also expected to have a "long and winding recovery", they note, as "external-oriented sectors such as the wholesale & retail trade and transportation & storage (-11% vs. -11.9% in 3Q) remained weak".

To this end, Chua and Lee say they expect a "modest recovery" of +4.5% in 2021, with the recovery being more U-shaped than V-shaped.

The analysts also predict that Singapore will only return to its pre-pandemic levels in early 2022.

"Recovery in 2021 will be conditional on services, which remains sluggish, while manufacturing already surged strongly in 2020," they add.

"Following the generous SG$100bn (20% of GDP) support package in 2020, we expect this year’s budget to stay expansionary, but with a smaller fiscal deficit of 4% of GDP (vs. 15% in FY2020). We expect the MAS to maintain its current S$NEER neutral stance in 2021 to support the recovery," they note, on Budget 2021.

CGS-CIMB economists Michelle Chia and Lim Yee Ping say they expect Singapore's economy to register "sequential growth throughout 2021", albeit at a more modest pace.

"The recovery is underpinned by ongoing fiscal and non-fiscal stimulus, the upturn in the global trade cycle, normalising consumption and investment patterns, the prospect of vaccine delivery and further easing of social distancing rules," they note.