The Singapore economy recorded one of the deepest contractions in South-East Asia in 2020, with real GDP falling by 5.4% according to the IMF. However, following a sharp 13.3% contraction in Q2 2020, the recovery has been relatively consistent, up till now. Quarterly economic growth in Singapore slowed in Q2 2021, according to the advance estimates of the Singapore Department of Statistics, following three consecutive quarters of growth. An outbreak of the coronavirus in mid-May led the Singapore Government to tighten existing restrictions in accordance with its zero-transmission policy, weighing heavily on economic activity during the quarter. However, despite quarterly growth slowing, year-on-year (YOY) growth in Q2 remained strong, with GDP only marginally lower than in Q2 2019.
GDP, in chained 2015 SGD measures, contracted by 2% QoQ in Q2 2021, falling from S$121.1bn ($89.5bn) in Q1 to S$118.7bn ($87.7bn). However, due to the low base effect from the contraction in Q2 2020, YOY growth was notably stronger, at 14.3%. In comparison with pre-pandemic output levels, GDP in Q2 2021 was only 0.9% smaller than in Q2 2019, indicating a recovery to pre-crisis output is likely by the end of this year. The manufacturing sector, the value-add of which increased by 7.3% in 2020, continues to be a standout performer, recording a growth of 19.3% in H1 2021 in comparison with H1 2019. The only other sector to have recovered past pre-pandemic levels is the information and communication, finance, insurance and professional services sector, the value-add of which recorded growth of 6.6% in H1 2021.
However, the performance of the construction sector continues to deteriorate. The construction industry in Singapore recorded a contraction of 35.9% in 2020, with a further contraction of 23% YOY recorded in Q1 2021. On a quarterly basis, the value-add of the construction industry contracted by 11% in Q2 2021, the sharpest contraction of all industries measured during the quarter. While YOY growth in Q2 2021 increased sharply to 99%, this is heavily influenced by low base effects due to the 65.5% contraction recorded in Q2 2020. Highlighting the depressed state of the construction sector, the value-add of the industry in H1 2021 was 27% smaller than in H1 2019.
While concern regarding the spread of the coronavirus, particularly the more virulent delta variant, is understandable, given Singapore’s low number of cases, high vaccination rate and developed healthcare system, it should be questioned whether the economic damage caused by the city-state’s aggressive zero-transmission policy is worthwhile. Despite the seven-day average of new cases peaking in 2021 at only 40 in May, at a time when Singapore’s fully vaccinated rate stood at 31%, restrictions were tightened considerably in response. Encouragingly, however, statements by the Singapore Government indicate a transition away from this zero-Covid policy is under consideration, with an easing of restrictions linked to the vaccination rate. An easing of restrictions would be expected to greatly aid the recovery of the construction industry, which continues to suffer from the uncertainty caused by the sporadic tightening of restrictions by the Singapore Government.