SINGAPORE – The Singapore economy posted an unexpected rise in first-quarter growth as gains in manufacturing were buttressed by signs of a nascent recovery in services industries.
Growth may continue to surprise for another quarter at least, partially helped by low base-year effects, and challenge the higher limit of the official forecast for this year.
But most analysts believe the pace of expansion will taper off in the second half amid continued slack in the labour market and curbs on international travel.
This was the economy’s first quarterly growth since the fourth quarter of 2019, before the onset of the Covid-19 pandemic. In the same quarter last year, before the onset of Covid-19 and mobility restrictions, gross domestic product (GDP) posted nil growth.
The first-quarter growth was a surprise as analysts had tipped the economy to shrink 0.5 per cent year on year, according to a Bloomberg poll.
Mr Prakash Sakpal, senior economist at ING Group in Singapore, said year-on-year GDP growth is poised for a significant jump in the second quarter as the sharp plunge of activity during the circuit breaker last year in the same period would exaggerate the comparison. But those gains were unlikely to last, he noted.
“As the base effects work through the year, we expect the yearly GDP growth rate to taper to low single digits over the second half of the year,” he said.
The Ministry of Trade and Industry (MTI) made no mention of its full-year 2021 forecast range of 4 per cent to 6 per cent in the GDP report.
However, the Monetary Authority of Singapore (MAS) said in its biannual review on Wednesday morning (April 14) that “Singapore’s GDP growth this year is likely to exceed the upper end of the official 4-6 per cent forecast range, barring a setback to the global economy”.
Meanwhile, MAS maintained its 0 per cent per annum rate of appreciation of its Singdollar policy band, saying it expects an above-trend pace of economic growth this year even as the sectors worst hit by the crisis will continue to face significant demand shortfalls.
OCBC Bank chief economist Selena Ling said MAS’ references to an above-trend pace of growth and that it may exceed the upper end of the official forecast were balanced with the concerns about the strength of the economy.
MAS said the negative output gap – which occurs when actual output is less than what an economy could produce at full capacity – will narrow through the course of 2021.
“However, significant uncertainties remain, including the possibility of further virus mutations and premature relaxation of social restrictions by governments, which could derail the global and domestic recovery,” the central bank noted.
Ms Ling said: “MAS’ open-ended statement without citing a revised range and a ‘significant uncertainties’ caveat could potentially be implied to rein in any potential runaway economic optimism and premature monetary policy tightening expectations.”
The economy expanded by 2 per cent on a quarter-on-quarter seasonally adjusted basis, extending the 3.8 per cent growth in the preceding quarter, according to MTI estimates, which are largely based on data from the first two months of the year.
For the first quarter, the manufacturing sector was the best performer, posting year-on-year growth of 7.5 per cent, better than the 7.3 per cent expansion it saw in the whole of 2020. However, the sector lost some steam from the previous quarter when it grew by 10.3 per cent year on year.
Construction, which is still suffering from some work restrictions related to Covid-19, shrank 20.2 per cent. Still, the figure was slightly better than the 27.4 per cent contraction it suffered in the fourth quarter and the 35.9 per cent decline in the whole of 2020.
The construction sector also weighed down the quarter-on-quarter growth, with expansion coming at just 8.4 per cent versus the 55.6 per cent jump in the previous quarter.
Manufacturing also did well on a quarterly basis. The sector grew 7.6 per cent, reversing the contraction of 1.4 per cent in the fourth quarter.
MTI said manufacturing growth was aided by output expansions in electronics, precision engineering, chemicals and biomedical manufacturing. Meanwhile, output declines were recorded in the transport engineering and general manufacturing clusters.
The relatively smaller contraction in construction came on the back of a pickup in public and private sector construction activities in the first quarter as compared with the previous quarter, MTI said.
The services industry – still suffering from Covid-19 mobility curbs – continued to shrink, posting a contraction of 1.2 per cent year on year. But its performance was a tad better than in the fourth quarter when it sank by 4.7 per cent. Services declined by 6.9 per cent in full-year 2020.
On a quarter-on-quarter seasonally adjusted basis, services expanded 0.4 per cent in the first quarter, slower than the 4.1 per cent growth recorded in the previous quarter. The sector had shrunk 6.9 per cent in the whole of 2020.
Mr Jeff Ng, economist at HL Bank, said the services sector’s performance was better than expected. 
“While services growth looks flatter compared with the previous quarter, perhaps weighed down by the lack of any upside impetus, we still see further upsides from improvements in economic activity levels as Singapore gradually removes Covid-19-related restrictions,” he said,
Within the services sectors, the wholesale and retail trade and transportation and storage sectors shrank by 4.1 per cent year on year in the first quarter, moderating from the 6.4 per cent contraction in the previous quarter.
The contraction recorded for this group of services industry was due to continued weakness in the transportation and storage sector, which was in turn primarily caused by the impact of the ongoing Covid-19 pandemic on the air transport, water transport and land transport segments, MTI said.
The accommodation and food services, real estate, administrative and support services and other services industries shrank by 3.9 per cent year on year, an improvement from the 9.9 per cent contraction in the previous quarter.
Meanwhile, the information and communications, finance and insurance, and professional services sectors collectively grew by 3.7 per cent year on year in the first quarter, faster than the 1.4 per cent expansion in the preceding quarter.
Growth was supported by healthy expansions in the information and communications and finance and insurance sectors, even as the professional services sector contracted, MTI said.
MTI has maintained its 4 per cent to 6 per cent 2021 growth forecast since last November. The higher end of the full-year estimate would make it the best year since 2011, when GDP grew by 6.3 per cent.
After an unprecedented 5.4 per cent economic contraction, which was Singapore’s worst-ever recession since independence, the 2021 estimate looks stellar. The economy grew by 1.3 per cent in 2019.
However, the growth acceleration this year can be partially attributed to the low base set in the second quarter of last year when the economy shrank by 13.3 per cent – the worst in a quarter ever.