Singapore's economy shrinks less than expected in third quarter, with 'glimmer of light near end of tunnel'

Singapore's economy recorded a milder contraction than expected in the third quarter, the trade ministry said on Monday, thanks to the easing of coronavirus lockdown measures and an uptick in manufacturing activity.

In its fifth revision this year, the Ministry of Trade and Industry forecast that full-year gross domestic product would contract by 6-6.5 per cent versus its previous forecast of 5-7 per cent. It also projected full-year growth for 2021 to come in at a range of 4-6 per cent.

Trade and Industry Minister Chan Chun Sing said while there was still work to be done to get the economy back on track, Singapore's near-zero infection numbers and resumption of more business and travel activities showed "a glimmer of light near the end of the tunnel".

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In October, the ministry had forecast that GDP in the third quarter would shrink by 7 per cent year on year, but on Monday reported a contraction of 5.8 per cent. The city state's economy grew 9.2 per cent on a quarterly, seasonally adjusted basis, also revised up from the 7.9 per cent October estimate, and rebounding from the 13.2 per cent contraction in the second quarter.

Growth in the third quarter was propped up by the manufacturing sector, which grew 10 per cent on a year-on-year basis, sharply rebounding from the 0.8 per cent contraction in the second quarter. This was primarily driven by the strong pickup in the electronics and pharmaceutical industries.

Even so, the ministry said that the global economic situation remains subdued. While China is expected to see a sustained recovery, other parts of the world, including the US and the Eurozone, are battling a new wave of infections.

"Domestically, weak external demand conditions and ongoing global travel restrictions are expected to continue to weigh on trade-related services sectors like wholesale trade, and aviation- and tourism-related sectors like air transport and accommodation," it said.

"Although consumer-facing sectors such as retail and food services have recovered from their troughs with the phased reopening of the economy, sales volumes are likely to remain below last year's levels due to dampened consumer sentiments and capacity constraints imposed by safe management measures."

Chan said recovery would depend on several factors including two not within Singapore's control - namely, the US-China relationship under the new Biden administration, and how governments worldwide would control new waves of Covid-19 infections. "We do not yet know how the new US administration will approach its relations with China. But we hope both sides will dial down tensions, and return to a more open and inclusive global economic order," he said.

Singapore's Trade and Industry Minister Chan Chun Sing, right, with Prime Minister Lee Hsien Loong during the signing of the Regional Comprehensive Economic Partnership agreement earlier this month. Photo: EPA alt=Singapore's Trade and Industry Minister Chan Chun Sing, right, with Prime Minister Lee Hsien Loong during the signing of the Regional Comprehensive Economic Partnership agreement earlier this month. Photo: EPA

As for the pandemic, as citizens grow increasingly fatigued with restrictions, governments need to "muster greater political will and determination to stem the spread of the virus", Chan said. "New and more frequent lockdowns will have a knock-on effect on global demand which will affect export-oriented economies like Singapore."

Jeff Ng, senior treasury strategist at HL Bank, said he was optimistic that the momentum could be sustained through the last quarter this year, adding that the external demand remained "healthy". Domestic demand, he said, has been helped by "revenge spending" by people who had been prevented from shopping during Singapore's lockdown, as well as by continued government support of the labour market.

But Selena Ling, head of treasury research and strategy at OCBC Bank, noted that the momentum could waver given the resurgence in global coronavirus cases, which have prompted localised lockdowns around the world. Britain, for example, is still under a second lockdown, while in Asia, Hong Kong is witnessing its fourth wave of infections.

"This may prove a setback to global demand conditions," Ling said.

Song Seng Wun, economist at CIMB Private Banking, was also expecting the strong quarterly growth to taper off in the fourth quarter, unless the manufacturing sector again sees a better-than-expected lift.

Ling said that potential bright spots to look out for in the fourth quarter would be vaccine developments, with some pharmaceutical companies suggesting that they could be available soon. Ling added that Singapore's transition to its third and final phase of economic reopening and the easing of more social restrictions, which officials say could come as early as December, could be beneficial to private consumption.

Song said that the postponement of the much-anticipated Singapore-Hong Kong travel bubble, which was initially set to commence on Sunday, was a reminder of how vulnerable Singapore's economic recovery is. After a surge in unlinked coronavirus cases in Hong Kong in the past week, authorities from both sides decided to push back the start of the quarantine-free travel corridor by two weeks.

"Both governments want to help as many businesses get back on their feet, but the unfolding coronavirus situation on the ground can derail these plans," he said.

This article originally appeared on the South China Morning Post (SCMP).

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