Is Singapore Economy out of the woods Yet?

The economy of each country is quite unique, as the driving forces of the economy may differ country-to-country. So, it is quite significant to understand the inherent driving forces of the Singapore economy.

Since last one decade, services industry has been the backbone of the economic growth for the Singapore economy. The Growth of services industry has never been in negative territory (i.e. contraction), though both manufacturing and construction industry’s contribution to GDP growth have been quite volatile.  

In Sept 2020, an economic survey was conducted (by MAS) on GDP growth forecast for FY20 and FY21, in which 28 economists and analysts (who closely monitor the Singapore economy) participated.

How Singapore Economy did in FY20

As per the survey, FY20 GDP growth was forecast to grow between -5 to -6% with 32% probability. The official GDP growth rate of Singapore was -5.4% (contraction). The official actual GDP growth rate figure was a bit better than the official forecast for an annual contraction of between 6- 6.5%.

The survey appears to be quite in inline with the actual GDP figure for FY20.

FY20 has been quite a forgettable year for Singapore economy (as it has been for other countries). On Year-on-Year basis, in Q1, the economy contracted by 0.2%. In Q2, it contracted by unprecedented level of 13.4%. In Q3, it contracted by 5.6%. In Q4, it contracted by 3.8%.

But as we already know Q2FY20 was the worst quarter across the world because of COVID19 situation. The economy still struggled in the subsequent quarters as well, but the deceleration in the growth got subsided a bit from Q3 onwards. So, if we want to know about the economic recovery then we would need to see the Quarter-on-quarter basis GDP figure as well. On Quarter-on-quarter basis, the economy contracted by 0.7%. In Q2, it contracted by 13.3%. In Q3, it changed its tack and grew by 9.5% (so recovery began). In Q4, it grew by 2.1%.

The Construction industry was the most impacted sector, which contracted by 33.3% on year-on-year basis. Services industry was the second most impacted sector, which contracted by 7.8%. Manufacturing was the sole industry which has come out of the woods very sharply from Q3 onwards and on overall FY20 basis, it grew by 7.1%.  

How Singapore Economy is expected to grow in FY21

The COVID19 daily infection figure has been quite negligible since past several weeks in Singapore. Also, Singapore Government has started island-wide COVID19 vaccination drive in Dec 2020. But still, COVID19 situation is far from over. So, the uncertainty around the economic recovery is going to remain there for few more quarters.

As per the MAS survey, Singapore economy is going to grow between 4-7% in FY21 by almost 60% of the probability.   

Citing the enormous size of the economic stimulus, the inflation may play a spoilsport for the expected economic recovery. As we can see what is happening at US economy – 10-year benchmark bond yield has exceeded 1.7% level and is expected to touch 2% soon. So, it is quite significant to know what is the expected inflation rate for FY21 for Singapore economy.

As per the MAS survey, CPI -All items inflation is going to grow between 0 – 1.4% in FY21 by almost 68% of the probability, which appears to be within the comfortable range. I hope the actual figure also stays this way only but still we need to remain cautious.  

Potential Risks to economy

As per the survey, there are three key downside risks to Singapore economy –

  • COVID19 Escalation
  • US-China Tension escalation
  • External Slowdown

Below are Survey results of factors which could be a potential risk to Singapore Economy (in % terms) –


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Published by Amit


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