National Outlook Singapore – 2022

Singapore’s official 2022 growth forecast of 3 per cent to 5 per cent announced by the Ministry of Trade and Industry (MTI) on 24th November 2021 did not surprise economists, most of whom had predicted growth in that range.

But with Q3 2021 growth revised upwards and the full-year forecast narrowing to “around 7 per cent” – at the top end of MTI’s earlier 6 – 7 per cent range – several economists bumped up their 2022 predictions.

2021’s Q3 gross domestic product (GDP) growth was 7.1 per cent, up from the preliminary 6.5 percent figure and taking growth for the first 3 quarters to 7.7 per cent. This was a slowdown from Q2, which saw growth of 15.2 per cent YoY. This strong increase was due to 2020’s low Q2 base.

Uneven Recovery Persisting In 2022

Singapore’s recovery, however, has been uneven, and this unevenness will persist in 2022.  Prospects for outward-oriented sectors and certain services remain strong.  But MTI published indicators noting that other sectors are expected to stay below pre-pandemic levels even by the end of 2022.

JPMorgan analyst Ong Sin Beng and Barclays economist Brian Tan had raised their 2021 summary projections to 7 per cent and 6.8 per cent respectively while maintaining their 2022 forecasts at 5 per cent, consistent with MTI’s top range for the year.

“While the pandemic remains a key source of downside risks, we believe the government will be better prepared to handle any future flare-ups in Covid-19 infections after facing the recent resurgence,” said Tan.

Other expectations were closer to the middle of the official range. Citi economists Kit Wei Zheng and Ang Kai Wei kept their 4 per cent forecast for 2022 and raised their 2021 summary projection to 6.9 per cent, assuming that sequential Q4 growth quickens to 1.5 per cent “on reopening momentum”.

UOB economist Barnabas Gan kept his outlook at 3.5 per cent for 2022.

Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye raised their 2022 forecast to 3.8 per cent on the back of a firmer recovery in construction and services, supported by reopening and the relaxation of border curbs. HSBC economist Yun Liu also expects a 3.8 per cent growth in 2022.

High Vaccination Rate and Booster Support Recovery

In 2022, Singapore’s high vaccination rate and booster shot roll-out will facilitate continued easing of domestic and border restrictions, which will support the recovery of consumer-facing sectors and alleviate migrant labour shortages, predicted MTI.

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

Yet, recovery of aviation and tourism-related sectors is likely to be gradual, with activity expected to stay below pre-Covid levels throughout 2022.

So, while the recovery will stay uneven, growth prospects for outward-oriented sectors such as manufacturing and wholesale trade remain strong, given robust external demand. Healthy demand should also drive growth in information and communications, as well as finance and insurance.

Consumer-facing sectors such as retail trade and F&B (food and beverage) services should recover as restrictions are eased and consumer sentiment improves. But the value-added of the F&B sector is not likely to return to pre-Covid levels by the end of 2022, “as some dine-in and event restrictions could remain in place, while the recovery in visitor arrivals is expected to be slow”.

And while retail trade value-added should recover to pre-pandemic levels by end-2022, “some segments such as department stores are likely to remain lacklustre, in part due to weak visitor arrivals”.

As for the migrant worker-reliant sectors of construction and marine and offshore engineering, these should recover as border curbs are eased. But as the shortfall will take time to address, labour shortages are likely to keep their output below pre-pandemic levels in 2022.

Rapid Pace and Persistent Inflation

The MTI flagged 4 downside risks for 2022: the trajectory of the Covid-19 pandemic; longer-than-expected global supply disruptions; continued geopolitical uncertainty; and more persistent inflation.

October 2021 inflation figures released at the end of September were pleasantly surprising.

In November, asked how the Monetary Authority of Singapore (MAS) would respond to inflation risks, MAS chief economist Edward Robinson said: “Our policy shift in October had anticipated the shift in the balance of risks towards firmer inflation pressures.

“We continue to remain vigilant to indications of a more rapid pace of consumer price increases, its persistence, and the extent to which it is broadening,” he added. Core inflation is expected to inch upwards in the first half of 2022, then ease in the second.

Asked about the implications of high inflation for real wage growth, permanent secretary for trade and industry Gabriel Lim said that nominal wages should keep improving as the labour market recovers and if productivity gains persist.

“If we are able to succeed in upgrading ourselves and transforming the economy, there’s no reason to expect real wage growth to be negative,” he added.

Updated Figures for 2021 Selected Sectoral Growth in Q3.

The manufacturing sector grew 7.2 per cent year on year, slowing from the preceding quarter’s 17.9 per cent growth.

Due to a low base a year ago, the construction sector grew 66.3 per cent, slowing from 117.5 per cent in Q2. In absolute terms, value-added for the sector was still 21.1 per cent below the pre-pandemic level in Q3 2019.

Wholesale trade saw faster growth than in Q2, while the information and communications sector maintained the same pace of growth from the previous quarter.

But with Q2 growth having been boosted by a low-base effect, many sectors saw growth moderate in Q3, including retail trade; transportation and storage; finance and insurance; real estate; and professional services.

Several sectors saw contraction. Accommodation and food and beverage services both reversed Q2’s growth – which had been boosted by a low-base effect – while the administrative and support services sector worsened from flat growth in Q2.

Finally, the “other services industries” category grew by 4.4 per cent, slowing from 16.1 per cent growth in the previous quarter. Contraction in the arts, entertainment and recreation segment was outweighed by growth in segments such as education; health and social services; public administration and defence; and others.

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