SINGAPORE, April 14 — Sectors that have been hit hardest by the Covid-19 pandemic such as construction and food services will be the ones to drive Singapore’s economic growth in the next few quarters, economists said.
They were responding to advance estimates released by the Ministry of Trade and Industry (MTI) today showing that the economy expanded 0.2 per cent in the first quarter, compared to the same period last year — the first growth in year-on-year terms since 2019.
The advance estimates are based on the first two months of the quarter, January and February, while the final figures, due out next month, reflect the full three-month period.
The economists added that should the final figures confirm the first quarter’s economic growth, it would be safe to say that Singapore has moved out of its worst recession since independence, after three straight quarters of quarter-on-quarter growth.
DBS senior economist Irvin Seah noted that Singapore has “long ago been out of a technical recession”, which is defined as two consecutive quarters of quarter-on-quarter contraction. For Singapore, these came in the first two quarters of 2020.
“Singapore is very likely out of a full fledged recession if today’s positive year-on-year growth pans out when the final figure is announced next month,” he said.
Looking ahead, the economists expect Singapore’s gross domestic product (GDP) — a measure of the national economy — to grow by as much as 15 per cent in the second quarter compared to the same period last year.
However, the economists added that the boisterous year-on-year figures do not mean that the economy is doing well, but rather that it is still creeping back to pre-pandemic levels. Instead, quarter-on-quarter growth — which came in at 2 per cent in the first quarter — may be a more meaningful metric to analyse.
Economic rebound due to ‘ultra low base’
The economy shrank by 5.4 per cent last year, and it is expected to grow by 4 to 6 per cent for the whole of this year.
Although the economy grew only 0.2 per cent in the first quarter, it will not be difficult to meet or even exceed this forecast, due to the “ultra-low base” set last year, economists said.
In the second quarter of last year — during which the nation went through a circuit breaker to restrict movement and activities — the economy had contracted by 13.1 per cent.
OCBC Bank chief economist Selena Ling said that she expects a 15 per cent year-on-year increase in the second quarter, which will bump up the overall figures for this year.
“Even if (the economy) normalises to back-to-earth numbers, we already shrank 5.4 per cent last year, so 6 per cent (growth) is doable.”
In the second quarter of last year, the construction industry suffered a 65.6 per cent slump as building projects were halted amid dormitory lockdowns, while the cluster which includes accommodation and food services fell by 22.2 per cent as many stayed home, curtailing demand.
Given the large dips these industries faced, they will be the ones to drive growth, said CIMB Private Bank economist Song Seng Wun.
The pace in the construction industry has been picking up, he said. Still, the industry reported a 20.2 per cent year-on-year decline in the first quarter, due to constraints such as labour shortages and safe-distancing measures that may still slow down some projects.
He expects growth of “over 100 per cent” in the sector for the second quarter this year, compared to the same period last year, due to the “low base” of having no projects at all last year when dormitories were locked down.
For industries in the services sector, such as accommodation and food services, he said that there may be a 10 to 20 per cent rebound.
“We are going to see an easing in restrictions, and an improvement in demand,” said Mr Song. “Vaccinations have taken place, so more consumer-facing activities will resume.”
In MTI’s advance estimates, it noted that the sector cluster of accommodation and food services, real estate, administrative and support services and other services industries had suffered a 3.9 per cent dip overall. Within the cluster, only the accommodations sector did not contract.
Maybank Kim Eng’s regional co-head of macro research, Dr Chua Hak Bin, said the reason the accommodation sector did not shrink compared to last year is that it had already been stricken as early as February last year when travel curbs came into effect as Covid-19 began to spread around the world.
Demand for hotel services has been up this quarter as well, as travellers into Singapore had to pay to serve out 14-day stay home notices at hotels.
“The first quarter also coincided with two big holiday periods (Christmas and Chinese New Year), and because a lot of Singaporeans cannot travel out, so that probably also contributed,” said Dr Chua.
Q-o-q figures a more salient indicator of economic growth
But while the year-on-year figures in the upcoming second quarter are expected to be off the charts, economists say that quarter-on-quarter growth is a more accurate representation of how the economy is doing, as the figures are not inflated by the low base effect of the previous year’s weak figures.
This first quarter’s 2 per cent quarter on quarter growth — known by economists as sequential growth — actually represents a slowing down of expansion, said Mr Seah from DBS, as it comes after 9 per cent and 3.8 per cent growth in the third and fourth quarter last year respectively.
“The sequential growth will get slower and slower,” said Mr Seah. “We have moved from a rebound phase into a normalisation phase… the growth momentum would be slower, and in Singapore’s context it could imply at least one quarter of negative growth.”
He added that this is because government support measures — such as the Jobs Support Scheme and the SingapoRediscovers Vouchers — will begin to taper off, and that globally there might be a resurgence in infections, which may affect the plans for travel bubbles.
While sequential growth may be a more constructive metric to look at, Ms Ling said narrowing growth figures may not be bad news, as it could mean that the economy is inching closer to pre-pandemic levels and hence growth will become more marginal.
“When we close the output gap, and the GDP level is back to our pre-covid levels… it means that the amount of slack you have in your economy is gradually going away because the demand is picking up,” she said. — TODAY
