SINGAPORE, Sept 2 — Economists expect Singapore’s economic growth to be driven in the next few quarters by the opening of borders to international travel, but flagged a re-escalation of Covid-19 to be the top risk to growth.

These were some of the findings released on Wednesday (Sept 1) in a quarterly survey by the Monetary Authority of Singapore (MAS).

China has also emerged as a potential risk factor in the central bank’s poll of 24 private-sector economists who closely monitor the Singapore economy.

Some 30 per cent of the respondents highlighted threats from a weaker-than-expected growth in China, which could arise from some recent regulatory developments.

A further deterioration in the Covid-19 situation and the associated retightening of infection control measures were also threats to growth outlook, identified as a top risk by a majority of the respondents. 

Singapore’s economy grew by 14.7 per cent in the second quarter this year compared with the same period last year, slightly below the 15 per cent forecasted by economists in an earlier survey in June.

For the third quarter of the year, economists are expecting a 7 per cent growth compared to the same period last year when activities were gradually reopening in phases after a two-month circuit breaker period of restrictive measures to curb the spread of Covid-19.

They raised their estimates for economic growth in 2021 to 6.6 per cent, slightly higher than the 6.5 per cent forecasted in June.

This was in line with the Ministry of Trade and Industry’s prediction for Singapore’s gross domestic product (GDP) to grow between 6 and 7 per cent this year, revised last month from an initial forecast of between 4 and 6 per cent.

Economists contacted by TODAY stressed, however, that these positive projections depend on there being no more major disruptions to the global economy from new coronavirus variants that may dilute the effectiveness of the Covid-19 vaccines.

Irvin Seah, senior economist at DBS bank, said: “This is always the key risk that most market-watchers have at the back of their minds, but we haven’t seen any sign of that, at least for now.”

Reopening borders

Economists in the MAS survey most frequently mentioned that the prospect of opening up borders would drive Singapore’s economy. 

This was identified by 70 per cent of the respondents, up from 44.4 per cent in the previous survey.

Economist Song Seng Wun from CIMB Private Banking expects economic growth to be subdued in the third quarter due to the restrictions during the periods of heightened alert, before taking off in the fourth quarter if more air corridors and travel bubbles are established. 

Since last Thursday, travellers from Hong Kong and Macau have been allowed to enter Singapore via an Air Travel Pass without having to serve a stay-home notice, provided they test negative for the coronavirus.

And from next Wednesday, vaccinated travellers from Brunei and Germany will also be able to enter Singapore without having to serve a stay-home notice, under a new Vaccinated Travel Lane arrangement. 

Even though Singapore is moving to relax its border controls, tourists could still be subject to entry restrictions back in their home countries.

Noting this, Seah of DBS said that Singapore reopening its borders will not have a major impact on its economy in the short term. Germany, for instance, is not the top tourism market for Singapore. 

“If anything, we will only feel stronger growth impetus in 2022 when we are able to establish more bilateral travel arrangements with more countries, particularly for key tourism markets such as China and Indonesia.”

He is projecting a 6 per cent year-on-year growth in the third quarter and 4.1 per cent for the fourth quarter.

Song, forecasting a 7 per cent expansion for the second half of the year, said that his prediction comes on the back of higher external demand from trading nations for Singapore’s key exports such as semiconductors, precision engineering products and chemicals.

He still expects goods-producing sectors such as manufacturing to do the heavy lifting, but said that services that have been allowed to reopen could help contribute to the economic growth towards the end of the year.

Risks to trade-reliant economy

Last month, China’s leaders released a five-year blueprint calling for greater regulation of vast parts of the economy, signalling that a crackdown with regard to privacy, data management, antitrust or competition infringements and other issues will persist through the year.

New laws introduced in the past months have affected some companies, particularly in the technology and education sectors, which could potentially have some impact on China’s growth momentum, Seah said. 

Maybank Kim Eng economist Lee Ju Ye said that Singapore’s economy, being reliant on trade and external demand, could in turn be affected by a slowdown in China’s economy since China accounts for 17 per cent of Singapore’s total exports.

“China’s crackdown (on internet and technology firms) and push to reduce income inequality may weigh on investment and spending,” she said.

Coronavirus infection numbers have also been rising in parts of the United States as it grapples with the Delta variant of the virus.

In China, Covid-19 has caused a two-week partial shutdown of the Ningbo-Zhoushan port, the world’s third busiest, causing congestion and delays at ports elsewhere.

Seah said that he does not expect increased cases of the disease in the US and China’s regulatory moves to drastically weigh down Singapore’s economy. 

“But definitely some degree of slowdown in growth momentum is to be expected,” he added.

Singapore’s reopening plans could be at the mercy of what is happening in some countries, but Selena Ling, head of treasury research and strategy at OCBC bank, said that the downside risk of that is limited. 

Sectors related to aviation and hospitality are already operating at a very low capacity, she added.

“The greater impact could be if tighter restriction measures are reimposed on businesses and households in Singapore, which could negatively dent business and consumer confidence.”

Song of CIMB said: “At worst, if the restrictions continue to stay or, at best, ease, then that would certainly help.” — TODAY