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SINGAPORE: The Singapore economy, which marked its worst recession in 2020, may be in for a better-than-expected recovery this year on the back of strengthening external demand.

The Monetary Authority of Singapore (MAS) on Wednesday (Apr 28) said the country’s gross domestic product (GDP) “could exceed 6 per cent” in 2021 – the upper end of an official forecast range – barring a setback in the global economic recovery or a surge in locally transmitted COVID-19 cases.

Near-term economic prospects have brightened on the back of strengthening external demand, said the central bank in its latest half-yearly macroeconomic review.

“There are upside risks to growth such as from a stronger-than-anticipated upturn in the global electronics cycle, but these are accompanied by downside risks pertaining to the mutation of the virus and efficacy of vaccination,” it wrote.


The Singapore economy contracted by an unprecedented 5.4 per cent after a coronavirus-hit 2020 and expectations are for a gradual recovery this year.

Preliminary data for the first quarter of 2020 showed a turnaround after three quarters of contraction, with strong manufacturing activity aiding a 0.2 per cent expansion

READ: ‘Green shoots’ of recovery for Singapore’s economy, although uncertainties remain: Economists

The MAS, however, warned that growth is likely to “remain disparate across sectors”.

“The robust GDP estimate belies continued unevenness in the dispersion of the recovery and is accompanied by elevated uncertainty,” it said.

Strong growth is expected for the manufacturing sector, which has been a bright spot over the past year, as the robust upswing in the global technology cycle continues to boost electronics production.

On the other hand, prospects for the worst-hit sectors, including air transport and accommodation, have “deteriorated somewhat” amid a global surge in COVID-19 infections and the emergence of more contagious strains.

These have diminished hopes for a substantial reopening of international borders in the near term, said the central bank.

Across other sectors, construction activities should be supported by a backlog of projects and an anticipated pick-up in demand this year although manpower shortages and rising material costs are challenges in the near term.

READ: Construction firms hit by India travel ban to get more flexibility to hire China workers

Improving consumer sentiment should continue to support the retail and food and beverage sectors, but some modern services segments that performed well during the pandemic may see growth moderating in the coming quarters. These include the fund management segment where asset prices could come under pressure due to already-stretched valuations.


The MAS, in its 119-page review, also said that the domestic labour market is expected to continue its recovery “at a steady pace” this year alongside the economy, with “most of the job gains accruing to residents”. Therefore, it expects the resident unemployment rate to “decline steadily throughout the year”.

However, with some slack persisting in the labour market, wage growth may remain relatively muted this year.

READ: MAS sees continued ‘steady’ recovery in labour market, resident unemployment rate to fall further

Turning to inflation, both the core and headline gauges are expected to step up in the months ahead on the back of a sharp recovery in global oil prices and the low base effects in the second quarter of 2020.

The pace of increase should ease in the second half of the year, “reflecting still-contained external and domestic cost pressures”, said the central bank while reiterating its forecasts for inflation this year.

READ: Singapore March core inflation quickens the most in more than a year

Core inflation, which strips out private transport and accommodation costs, is set to average between 0 to 1 per cent, while the all-items inflation was recently upgraded to a range of 0.5 to 1.5 per cent.  

Taking all into consideration, the MAS said therefore it decided to maintain “a zero per cent per annum rate of appreciation” of its policy band at its twice-yearly review earlier this month.

“An accommodative monetary stance remains appropriate”, added the central bank, noting that this will “complement strong fiscal policy, support the narrowing of the negative output gap and ensure price stability over the medium term”.

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