Singapore’s recovery on track, GDP may hit 6 percent, says IMF

In its report on July 16, the International Monetary Fund said Singapore's recovery is expected to be led by manufacturing and modern services, bringing projected annual growth to 6 percent in 2021.

21, Jul. 2021

The International Monetary Fund's board of executive directors discuss findings on economic developments and policies of a country and then make recommendations in a report. (Photo: IMF)
The International Monetary Fund's board of executive directors discuss findings on economic developments and policies of a country and then make recommendations in a report. (Photo: IMF)

SINGAPORE, NNA - Following a record contraction in 2020, the Singapore economy is poised to recover this year as the country has tackled the COVID-19 pandemic head-on with a huge policy space and robust economic policy frameworks, said the International Monetary Fund (IMF).

Activity is expected to accelerate in the second half of this year as vaccines become more widely available, and may bring annual growth to 6 percent in 2021, according to IMF executive directors in their latest report.

They noted that the authorities had mounted a coordinated, comprehensive, and sizable policy response, with fiscal policy acting as a first line of defense.

As a result, worse outcomes were prevented and real GDP, which contracted by 5.4 percent in 2020, registered 1.3 percent year-on-year growth in the first quarter of 2021, led by a strong manufacturing sector performance, said IMF in a press release on its latest country report on Singapore on July 16.

Labor market conditions in the city-state have been supported by the broad-ranging policy initiatives, with unemployment declining to 2.9 percent in April 2021 from its peak of 3.5 percent in September 2020.

Policy support also helped banks maintain strong liquidity and capital buffers. The current account surplus has remained resilient throughout the crisis and registered 17.6 percent of GDP in 2020, said IMF.

Singapore's recovery is expected to be led by manufacturing and modern services since hard-hit sectors such as aviation and tourism-related industries would see a turnaround more gradually.

Analysts have also expressed more optimism for Singapore rebounding to the pink of health this year.

Fitch Solutions revised their 2021 growth forecast to 6.1 percent, up from 5.8 percent previously, to reflect Singapore’s prospects for a more resilient recovery in the second half as vaccinations gather pace.

Singapore's inflation, which had turned negative in 2020, registered 2.1 percent year-on-year in April. Inflation is expected to be contained given the remaining slack in the labor market, said IMF.

With the recovery in domestic demand, the current account surplus is expected to decline to 15.5 percent of GDP in 2021, it said.

Over the medium term, growth should converge to 2.5 percent with the current account surplus declining and the Monetary Authority of Singapore core inflation stabilizing at 2 percent.

However, IMF warned that the outlook is subject to unusually high uncertainty, with "balanced risks stemming mostly in the near term from the unknown trajectory of the pandemic globally and locally, as well as the path for vaccines."

Additional risks include volatile global financial conditions, threats to globalization and trade, and the uncertain impact of the pandemic on the corporate sector.

Given pockets of risks remaining in the financial sector, IMF directors recommended continued supervisory vigilance, such as close monitoring of non-performing loans in real estate markets and banks’ foreign currency risk.

They also encouraged the authorities to continue to strengthen US dollar liquidity among domestic systemically important banks (D-SIBs).

Welcoming ongoing initiatives to facilitate economic transition post‑pandemic, the directors said the authorities’ focus on labor reskilling and training would help facilitate resource reallocation in high-growth sectors.

IMF directors agreed that macroeconomic policies should remain supportive in the near term while efforts should continue to facilitate a transition toward a greener, smarter, and more inclusive economy over time.

"Singapore's plans to accelerate digitalization, innovation, and climate-resilient infrastructure investment should help sustain medium-term economic growth," IMF concluded.