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Sectors hardest hit by Covid-19 to drive growth as S’pore springs back from recession: Economists

SINGAPORE — 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.

Economists believe the latest economic figures indicate that Singapore has probably emerged from its worst full-fledged recession since independence.

Economists believe the latest economic figures indicate that Singapore has probably emerged from its worst full-fledged recession since independence.

  • Economists expect Singapore’s economy to grow by up to 15 per cent in the second quarter compared to the same period last year
  • It will be easy to meet or even beat the forecast of 4 to 6 per cent growth this year, due to the “ultra-low base” set last year
  • Though year-on-year numbers look good, quarter-on-quarter growth more accurately shows how the economy is doing

 

SINGAPORE — 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) on Wednesday (April 14) showing that the economy expanded 0.2 per cent in the first quarter, compared with 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, will 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.

Senior economist Irvin Seah from DBS bank noted that Singapore has “long ago been out of a technical recession”, which is defined as two consecutive quarters of quarter-on-quarter contraction. That happened 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 with the same period last year.

However, they said 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.

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, the 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's 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 during dormitory lockdowns, while the cluster that includes accommodation and food services fell by 22.2 per cent as many people stayed home, curtailing demand.

CIMB Private Bank's economist Song Seng Wun said that given the large dips that these industries faced, they will be the ones to drive growth. 

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 with 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, there may be a 10 to 20 per cent rebound.

“We are going to see an easing in restrictions, and an improvement in demand,” Mr Song said. “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.

Dr Chua Hak Bin, Maybank Kim Eng’s regional co-head of macro research, said the reason that the accommodation sector did not shrink compared with last year was 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 many Singaporeans cannot travel outside of the country, so that probably also contributed (to domestic demand),” Dr Chua said.

SLOWING DOWN OF EXPANSION

Year-on-year figures in the upcoming second quarter are expected to be off the charts, but quarter-on-quarter growth is a more accurate representation of how the economy is doing, since the figures are not inflated by the low base effect of the previous year’s weak figures, the economist said.

This first quarter’s 2 per cent quarter-on-quarter growth — known by economists as sequential growth — represents a slowing down of expansion, Mr Seah from DBS said. It comes after a 9 per cent growth in the third quarter and a 3.8 per cent growth in the fourth quarter last year.

“The sequential growth will get slower and slower,” he said. “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 monitor, Ms Ling from OCBC said that narrowing growth figures may not be bad news, as it could mean that the economy is inching closer to pre-pandemic levels and so, 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.

Related topics

construction food service economy Covid-19

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