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Singapore’s economy could grow by more than 6% this year, but the recovery will be “ patchy ” across sectors: MAS

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SINGAPORE: Singapore’s economy, which marked its worst recession in 2020, could experience a better-than-expected recovery this year thanks to stronger external demand.

The Monetary Authority of Singapore (MAS) said on Wednesday April 28 that the country’s gross domestic product (GDP) “could exceed 6%” in 2021 – the high end of an official forecast range – within a setback in global economic recovery or an increase in locally transmitted COVID-19 cases.

The near-term economic outlook has brightened with stronger external demand, the central bank said in its latest semi-annual macroeconomic review.

“There are upside risks to growth, such as a stronger-than-expected recovery of the global electronic cycle, but these are accompanied by downside risks related to virus mutation and vaccine effectiveness.” , he writes.

UNMATCHED RECOVERY

Singapore’s economy contracted by an unprecedented 5.4% rate after a coronavirus hit in 2020 and expectations are for a gradual recovery this year.

Preliminary data for the first quarter of 2020 showed a recovery from three quarters of contraction, with strong manufacturing activity contributing to a 0.2% expansion.

READ: ‘Green shoots’ of recovery for Singapore economy, though uncertainties remain: economists

The MAS, however, warned that growth “is likely to remain disparate between sectors”.

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“The robust estimate of GDP belies the persistence of inequalities in the dispersion of the recovery and is accompanied by high uncertainty,” he said.

Strong growth is expected for the manufacturing sector, which has been a bright spot over the past year as the strong upturn in the global technology cycle continues to boost electronics production.

On the flip side, the outlook for the most affected sectors, including air travel and accommodation, has “deteriorated somewhat” amid a global spike in COVID-19 infections and the emergence more contagious strains.

These have lowered hopes of a substantial reopening of international borders in the near term, the central bank said.

In other sectors, construction activity is expected to be supported by a backlog of projects and an expected pick-up in demand this year, although labor shortages and rising material costs are challenges in the near term. .

READ: Construction companies hit by India travel ban to get more flexibility to hire Chinese workers

Improving consumer confidence is expected to continue to support the retail and food and beverage sectors, but some modern service segments that have performed well during the pandemic may see their growth slow in the coming years. quarters. These include the fund management segment where asset prices could come under pressure due to already strained valuations.

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RECOVERY OF THE LABOR MARKET, HIGHER INFLATION

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The MAS, in its 119-page review, also said the national labor market is expected to continue its recovery “at a steady pace” this year alongside the economy, “with most of the job gains going to residents. “. Therefore, he expects the unemployment rate for residents to “decline steadily throughout the year.”

However, given that some slowdown persists in the labor market, wage growth could remain relatively subdued this year.

READ: MAS sees continued ‘steady’ labor market recovery, resident unemployment rate to fall further

Regarding inflation, the underlying and leading indicators are expected to intensify in the coming months due to a strong recovery in global oil prices and low base effects in the second quarter of 2020.

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The pace of the increase is expected to slow in the second half of the year, “reflecting pressures on external and domestic costs that are still contained,” the central bank said while reiterating its inflation forecasts this year.

READ: Core inflation in Singapore in March accelerates the most in over a year

Core inflation, which excludes private transportation and accommodation costs, is expected to average between 0 and 1 percent, while headline inflation has recently been raised to a range of 0.5 to 1. , 5 percent.

Taking everything into consideration, the MAS said it therefore decided to maintain “a zero percent appreciation rate per year” of its policy range during its biannual review earlier this month.

“An accommodative monetary stance remains appropriate,” added the central bank, stressing that this “will complement a sound fiscal policy, support the reduction of the negative output gap and ensure price stability over the medium term.”

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