Singapore economy grows 7% in 2021; MTI expects slower 3-5% growth in 2022 amid uneven recovery

• The economy grew by 7.1 per cent year-on-year in the third quarter, slower than the 15.2 per cent expansion recorded in the previous quarter
• Domestically, travel and domestic restrictions have continued to weigh on the recovery of the aviation and tourism-related sectors
• However, growth in outward-oriented sectors such as electronics and finance and insurance has been stronger than expected
• A slower GDP growth of 3 to 5 per cent is expected in 2022 amid the uneven recovery

SINGAPORE — Singapore’s gross domestic product (GDP) growth is expected to come in at about 7 per cent this year, before slowing to 3 to 5 per cent next year amid an “uneven” recovery, the Ministry of Trade and Industry (MTI) said in a statement on Wednesday (Nov 24).

The economy also grew by 7.1 per cent year-on-year in the third quarter, slower than the 15.2 per cent expansion recorded in the previous quarter. MTI said this was largely due to the low base from the corresponding quarter in 2020 when GDP had fallen by 13.3 per cent due to the Covid-19 circuit breaker measures implemented from April to June that year.

On a quarter-to-quarter seasonally adjusted basis, the economy expanded by 1.3 per cent in the third quarter, which was a turnaround from the 1.4 per cent contraction in the second quarter.

Overall, the GDP growth in the first three quarters came in at 7.7 per cent.

MTI said that due to “the latest external and domestic developments”, GDP growth for this year has been narrowed to around 7 per cent, from the previous 6 per cent to 7 per cent forecast. 

“Domestically, travel and domestic restrictions have continued to weigh on the recovery of our aviation and tourism-related sectors, as well as consumer-facing sectors,” said Permanent Secretary for Trade and Industry Gabriel Lim in a media conference on Wednesday.

“However, growth in outward-oriented sectors such as electronics and finance and insurance has been stronger than expected.”

Looking forward to 2022, MTI said that the recovery of the various sectors of the economy will remain “uneven”. While the manufacturing, information and communications, and finance and insurance sectors will continue to see steady growth, the aviation and tourism related sectors will likely see a more gradual recovery due to the slow resurgence of global travel demand.

HOW THE SECTORS PERFORMED

The manufacturing sector grew by 7.2 per cent year-on-year, moderating from the 17.9 per cent growth in the preceding quarter, while on a quarter-on-quarter seasonally adjusted basis, the manufacturing sector shrank marginally by 0.1 per cent, easing from the 2.2 per cent contraction in the second quarter.

The construction sector expanded by 66.3 per cent year-on-year, slowing from the 117.5 per cent expansion in the previous quarter as both public sector and private sector construction output rose, said MTI.

It added that the strong growth during the quarter was mainly because of “low base effects given the slow resumption of construction activities after the circuit breaker period last year”.

In absolute terms, the “value-added” of the sector in the third quarter remained 21.1 per cent below its pre-pandemic level, while on a quarter-on-quarter seasonally adjusted basis, the sector posted growth of 4.9 per cent, a reversal from the 2.4 per cent contraction in the second quarter.

The food and beverage (F&B) services sector shrank by 4.2 per cent year-on-year, in contrast to the 36.9 per cent expansion in the second quarter. “The performance of the sector was adversely affected by the re-imposition of tighter dine-in and event restrictions during the quarter, including the prohibition of dine-in services under Phase Two heightened alert measures,” said MTI. 

The “value-added” of the sector in the third quarter was still 27.3 per cent below its pre-Covid level, and on a quarter-on-quarter seasonally adjusted basis, the sector contracted by 2.8 per cent, extending the 8.0 per cent contraction in the preceding quarter.

The wholesale trade sector grew by 5.9 per cent year-on-year, faster than the 3.4 per cent expansion in the previous quarter, and on a quarter-on-quarter seasonally adjusted basis registered flat growth, improving from the 0.6 per cent contraction in the preceding quarter.

The retail trade sector expanded by 0.7 per cent year-on-year, slower than the 51.1 per cent growth in the previous quarter, and on a quarter-on-quarter seasonally adjusted basis grew by 3.1 per cent, a reversal from the 4.3 per cent contraction in the preceding quarter.

The transportation and storage sector slowed to 8.2 per cent year-on-year from 20.1 per cent in the second quarter, while the accommodation sector contracted by 4.1 per cent year-on-year, a reversal from the 15.8 per cent expansion in the preceding quarter.

The information and communications sector expanded by 10.4 per cent year-on-year, the same pace of growth as in the previous quarter, while the finance and insurance sector grew 9.0 per cent year-on-year, extending the 9.8 per cent recorded in the preceding quarter.

The real estate sector grew by 16.8 per cent year-on-year, slower than the 26.3 per cent growth in the preceding quarter.

The professional services sector and the administrative and support services sector expanded by 4.4 per cent and 1.3 per cent year-on-year, respectively, while the “other services industries” grew by 4.4 per cent year-on-year, slower than the 16.1 per cent growth in the preceding quarter.

ECONOMIC OUTLOOK FOR 2021

MTI said that both “external and domestic developments” have narrowed the growth forecast for this year to 7 per cent.

In Singapore, travel and domestic restrictions have continued to hinder the recovery of aviation- and tourism-related sectors such as air transport and arts, entertainment and recreation, as well as consumer-facing sectors such as F&B services and retail trade, said MTI.

Growth in “outward-oriented sectors” such as electronics and finance and insurance has been “stronger than expected, bolstered by robust demand for semiconductors, and insurance products and fund management services, respectively”, said MTI.

Globally, some economies such as the US and key European countries have achieved high vaccination rates and also started booster shots, and thus have largely removed restriction measures.

“This has helped to sustain their economic recoveries,” said MTI.

In Asia, Covid-19 outbreaks and the re-imposition of restrictions had disrupted the recoveries of “key Southeast Asian economies”, while for China, economic growth is expected to be slower than anticipated due to its property market downturn and its “sluggish consumption growth amid periodic local outbreaks that have led to the imposition of restrictions to contain the outbreaks”.

ECONOMIC OUTLOOK FOR 2022

In 2022, GDP is expected to grow by 3 per cent to 5 per cent, due to both domestic and external factors.

In Singapore, vaccination rates and the steady rollout of booster shots will continue to facilitate the progressive easing of domestic and border restrictions, which will in turn support the recovery of consumer-facing sectors and alleviate labour shortages.

Air travel and visitor arrivals are also expected to improve with the loosening of travel restrictions and expansion of vaccinated travel lanes.

The recovery of the various sectors of the economy is expected to remain uneven, said MTI.

While the growth prospects for outward-oriented sectors such as manufacturing and wholesale trade will remain strong given robust external demand, the recovery of the aviation and tourism-related sectors such as air transport and accommodation is expected to remain below pre-Covid levels throughout 2022.

This is because global travel demand will take time to recover and travel restrictions “could persist in key visitor source markets”, said MTI.

The accommodation sector will also be weighed down by a projected decline in domestic demand due to factors such as lower staycation demand with the relaxation of travel restrictions, said MTI.

Consumer-facing sectors such as retail trade and F&B are projected to recover as domestic restrictions are progressively eased and consumer sentiments improve, but these sectors are unlikely to return to pre-Covid levels by end-2022 due to the dine-in and event restrictions that could remain in place, and weak visitor arrivals.

Globally, GDP growth in most advanced economies is expected to “moderate” as compared to 2021 but remain above pre-Covid trend rates, while key Southeast Asian economies are projected to see faster growth in 2022 as they progressively resume more economic activities.

“Meanwhile, supply bottlenecks and disruptions could continue to weigh on industrial production in some external economies in the near term,” said MTI.

For the US and Eurozone economies, growth is projected to moderate in 2022, although remaining above its pre-Covid trend rate.

For China, its growth is projected to slow due to its property market downturn, constraints imposed on energy use, and adherence to a zero-Covid policy, which could dampen consumption growth.

However, downsides such as the trajectory of the Covid-19 pandemic remain a risk, said MTI.

“While vaccination rates have picked up in many economies, there are concerns over waning vaccine efficacy and potential mutations of the virus,” the ministry said.

“Hence, even in economies with high vaccination rates and booster rollouts, infections could still rise and weaken their recovery.”