SINGAPORE – Singapore’s economy contracted by 5.8 per cent for the whole of 2020, according to the Ministry of Trade and Industry’s (MTI) advanced estimates released on Monday (Jan 4).

For the fourth quarter of last year, the economy shrank by 3.8 per cent year on year, an improvement from the revised 5.6 per cent drop in the third quarter, as more coronavirus related curbs on economic activity were lifted. 

The economy’s fourth quarter performance was also better than the 4.5 per cent year-on-year drop forecast by economists in a Reuters poll.

On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 2.1 per cent, following the 9.5 per cent expansion in the third quarter.

The strong GDP growth seen in the third quarter was due to the phased resumption of activities following the circuit breaker period stretching from April 7 to June 1, as well as the rebound in activity in major economies during the quarter as they emerged from their own lockdowns, MTI said.

The full-year 2020 MTI estimate tops earlier forecasts of a contraction of 6.5 per cent to 6 per cent made last month and is much lower than a previous estimate of a 7 per cent to 5 per cent shrinkage.

In its maiden forecast for next year, MTI said last month the economy may expand by 4 per cent to 6 per cent – the most since 2011, when it grew by 6.3 per cent.

The fourth quarter 2020 performance was helped by the manufacturing sector’s 9.5 per cent year-on-year expansion that extended its 10.8 per cent growth in the previous quarter.

Growth of the sector was supported primarily by output expansions in the electronics, biomedical manufacturing and precision engineering clusters, which outweighed output declines in the transport engineering and general manufacturing clusters, MTI said.

However on a quarter-on-quarter seasonally-adjusted basis, the manufacturing sector contracted by 2.6 per cent, a pullback from the 12.6 per cent expansion in the third quarter.

Mr Jeff Ng, senior treasury strategist at HL Bank, said the better than expected fourth-quarter performance reflects Singapore’s success in containing Covid-19 cases that enabled economic activities to improve from the previous quarter.

“Manufacturing saw its stellar performance taper off a little. However, it remains a key pillar of support for the economy. We stay optimistic that manufacturing will stay supportive in 2021,” he said.

DBS Bank analysts Mr Kee Yan Yeo and Ms Janice Chua said they expect a strong recovery in 2021 to be underpinned by wider vaccine availability, more stable US-China trade relations, stronger regional trade ties, continued fiscal support and lower-for-longer interest rates.

“The Covid situation and vaccination rate will play a big role in Singapore’s near-term outlook with our economist expecting 2021 GDP to rebound 5.5 per cent,” they said in a research note.

The construction sector shrank by 28.5 per cent on a year-on-year basis in the fourth quarter, still better than the 46.2 per cent contraction in the preceding quarter.

The improved performance of the sector came on the back of the resumption of more construction activities in the fourth quarter as compared to the previous quarter, MTI said.

On a quarter-on-quarter seasonally-adjusted basis, the construction sector grew by 34.4 per cent, extending the 39 per cent growth in the third quarter. 

Within the services sectors, the wholesale and retail trade, transportation and storage sectors shrank by 11 per cent in the fourth quarter, moderating slightly from the 11.9 per cent contraction in the previous quarter.

MTI said that the performance of these services sectors in particular was weighed down by the trade-related segments such as wholesale trade and water transport, which contracted due to sluggish external demand as major economies around the world continued to grapple with the Covid-19 pandemic.

More downward pressure was added by the air transport segment, which shrank on the back of ongoing global travel restrictions and weak travel demand, the ministry said.

The accommodation and food services, real estate, administrative and support services and other services industries shrank by a combined 9.9 per cent, better than the 13.5 per cent contraction in the third quarter.

Within the group, the accommodation segment continued to shrink as a result of weak tourism demand, while the performance of the food services segment and other services industries – such as arts, entertainment and recreation was weighed down by constraints arising from the implementation of safe management measures, MTI said.