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After recording a 5.4 per cent fall in GDP in 2020 Singapore is set to roar out of the COVID-19 pandemic with one of the region’s strongest economies, with the International Monetary Fund (IMF) forecasting a Singapore 2021 GDP of 6.0 per cent.

The forecast came after Article IV consultations with Singapore concluded as the island city-state battles a fresh COVID-19 outbreak centred around Karaoke nightclubs and hostesses.

According to the IMF executive board, Singapore entered the COVID-19 pandemic with “sizeable policy space and robust economic policy frameworks. “These enabled the authorities to mount a coordinated, comprehensive, and sizeable policy response, with fiscal policy acting as a first line of defence”.

As a result, the IMF said the worse outcomes were prevented and real GDP, which contracted by 5.4 per cent in 2020, registered a 1.3 per cent year-on-year growth in 2021Q1, “led by a strong manufacturing sector performance”.

Government policy behind Singapore turnaround

The report says the Singapore government’s support for labor market conditions throughout the pandemic have been “wide-ranging”, resulting in unemployment falling to 2.9 per cent in April 2021, from a peak of 3.5 per cent in September 2020. Inflation, which had turned negative in 2020, registered 2.1 per cent year-on-year in April.

According to the statement, policy support helped banks maintain strong liquidity and capital buffers. “The current account surplus was resilient through the crisis and registered 17.6 per cent of GDP in 2020, the IMF directors said.

The IMF Board says Singapore’s economic recovery is expected to remain on track in 2021, with business activity expected to accelerate in 2021H2 as vaccines become more widely available.

Manufacturing and modern services are expected to lead Singapore’s recovery, with hard-hit sectors such as aviation and tourism related industries expected to improve more gradually.

Inflation is expected to be contained given remaining slack in the labor market, while recovery in domestic demand is expected to see the current account surplus contract to 15.5 per cent of Singapore 2021 GDP.

For the medium term growth is expected to converge to 2.5 per cent with the current account surplus declining and Monetary Authority of Singapore (MAS) core inflation stabilising at 2 per cent, though it noted that the the outlook is subject to “unusually high uncertainty”.

While Singapore’s external position remains substantially stronger than warranted by fundamentals in 2020, some IMF directors said the external sector assessment needed to be interpreted with caution given uncertainty surrounding the pandemic.

Earlier in the week Barnabas Gan, an economist at United Overseas Bank Group (UOB), said that owing to the surprisingly strong performance in 2021Q2 and amid a rosier economic prognosis, the bank had upgraded its full-year Singapore 2021 GDP growth outlook to 6.5 per cent, from its prior forecast of 5.5 per cent.

Feature photo Graham H

Related: 

• IMF Executive Board Concludes 2021 Article IV Consultation with Singapore (IMF)
• Singapore’s economy roars back with a 14.3% surge in the second quarter from a year ago (CNBC)
• Singapore: GDP seen expanding 6.5% in 2021 – UOB (FXStreet)
• Singapore economy to get back on track after Q2 stumble (Reuters)

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