Economists raise Singapore 2021 GDP forecasts to at least 6.5% despite 2Q2021 flash estimates missing consensus

Despite advance Singapore 2Q2021 GDP estimates coming in below consensus figures, economists remain mostly upbeat and anticipate a stronger performance in the coming months.

According to data released by the Ministry of Trade and Industry (MTI) on July 14, Singapore’s GDP grew 14.3% y-o-y in 2Q2021, compared to consensus estimates of 14.8%.

The strong growth was largely due to the low base in 2Q2020 when GDP fell by 13.3% due to the “circuit breaker” measures implemented from April 7 to June 1, 2020.

However, on a q-o-q seasonally-adjusted basis, the Singapore economy contracted by 2% in 2Q2021, a reversal from the 3.1% growth in the preceding quarter, and the first decline since 2Q2020. Economists attribute the contraction to the drag from the implementation of Phase Two and Phase Three (Heightened Alert) measures.

Nonetheless, in absolute terms, GDP in 2Q2021 remained 0.9% below its pre-pandemic level in 2Q2019.

MTI has maintained the official GDP growth forecast for 2021 at 4%-6% and highlighted that a revision to its full-year growth outlook will be made in August.

Noting that the advance estimates are based on data from the first two months of the quarter during which tighter restrictions were in place, economists see the potential for the final 2Q2021 GDP estimates to be revised upwards. “We thus expect a modest upward revision in the final 2Q2021 GDP outcome once June data is incorporated,” says JP Morgan’s Sin Beng Ong.

UOB economist Barnabas Gan has upgraded his full-year GDP growth forecast to 6.5% from 5.5% previously, citing a “surprisingly strong performance” in 2Q2021 and a “rosier economic prognosis ahead”.

Supporting his sanguine outlook is Singapore’s manufacturing growth of 18.5% for the quarter, in line with his expectations. In addition, he sees an “encouraging” recovery in the construction and services sectors, which grew 98.8% and 9.8% y-o-y respectively.

“For the full year, we maintain our manufacturing forecast at 8%, and upgrade our services and construction growth outlook to 5% (from 4.7%) and 17.7% (from 1.1%) respectively,” he says.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye share a similarly bullish outlook, raising their 2021 GDP growth forecast to 6.8% from 6.2% previously. Their revised forecast reflects the stronger manufacturing performance, as well as their expectations that safe distancing measures will be further relaxed once Singapore’s vaccination rate reaches 50% in August.

Oxford Economics economist Sung Eun Jung is also optimistic about the vaccination pace, anticipating that 70% of the population will be fully vaccinated by August. While Sung has currently kept her 6.4% full-year estimate unchanged, she “will look to nudge up” her forecast given the stronger-than-expected 2Q2021 numbers.

Meanwhile, JP Morgan’s Ong has kept his GDP growth forecast unchanged at 7%, though he remains cautious on cross-border travel restrictions, which will have knock-on effects on industries reliant on foreign workers.

OCBC’s Selena Ling also believes full-year 2021 GDP growth will come in close to 7% y-o-y, in view of the 7.4% growth recorded in 1H2021. “With the global and domestic economic recovery likely to pick up speed with the ramp-up in vaccination rates, Singapore’s 2H2021 GDP growth may come in around 6.7% y-o-y, barring further Covid-related uncertainties that could warrant another tightening from Phase Three (Heightened Alert) conditions,” she says. — Atiqah Mokhtar