Its place and role as key trade and financial hub, as well as overall prospects for Asean, will see it weather the storm better, say economists

A study for the Asia Competitiveness Institute estimated that, assuming the Covid-19 effect withers away after three quarters, a recovery within about six quarters is likely for all of Singapore’s sectors except construction. 

WITH the Covid-19 pandemic leading to a less globalised world, Singapore cannot expect the growth rates of the past. But globalisation will not end, and Singapore retains its international advantages, said economists.

On Sunday, Prime Minister Lee Hsien Loong warned of “tectonic shifts” in the world economy, with a faster and further slowdown in trade and investment. “We will not be returning to the open and connected global economy we had before, anytime soon,” he said.

As Mr Lee noted, this slowing of trade and investment was in progress before Covid-19. UOB economist Barnabas Gan’s estimates already take into account a less globalised world – which “we are already in”, he said, given the trade tensions between the United States and China since 2019.

Beyond 2021, UOB expects Singapore’s gross domestic product (GDP) growth to average about 2 to 4 per cent per year for the next decade, with the base case that Covid-19 is successfully contained in Singapore and key trading partners into 2021.

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This is slightly more bullish than the projected range of 2 to 3 per cent “over the next decade”, made by the Committee on the Future Economy (CFE) in 2017. Mr Gan said this was “because Singapore has shown its potential to be well-positioned in the manufacturing and exports of biomedical products, especially during the Covid-19 pandemic”.

Still, the extent of the “less globalised world” remains in question, which may mean downside risks to UOB’s predicted range, he added.

Prior to the CFE, the Economic Strategies Committee (ESC) in 2010 recommended a medium-term GDP growth range of 3 to 5 per cent per annum from 2009 to 2019. In 2015, this was revised to 2 to 4 per cent per annum from then to 2020.

With average growth of 5.2 per cent from 2009 and 2015, and 2.9 per cent from 2015 to 2019, Singapore has met the ESC targets, excluding 2000, observed OCBC Bank chief economist Selena Ling.

The post-Covid new normal, though, could see slower global growth. Apart from the pandemic’s effects, supply chain disruptions and the US-China trade war may “prompt more onshoring of key production facilities, especially for essential goods and services”, she said.

In such a world, if capital and talent is prevented from flowing freely, financial asset pricing may be affected, and Singapore may feel the impact as a key trading hub and financial centre. “But…the situation is still fluid,” she noted.

Nanyang Technological University professor of economics Tan Kong Yam sees things stabilising in 2021, with a chance of growth averaging 2 to 3 per cent per year over the next decade, in line with the FEC target. But this will be volatile, fluctuating between -1 and 5 per cent, he added.

Singapore retains advantages such as being a hub for the region, not least with the relative decline of Hong Kong, said Prof Tan. It also remains “an open and inclusive economy”.

“When the fire and fury of rhetoric is over, the world trading and financial system will fray but not collapse,” he said. In a post-Covid world, Asean is also likely to emerge stronger compared to other emerging economies. If Singapore can plug into Asean’s growth, its medium term growth prospect will be greatly enhanced.

Similarly, Mr Lee had noted: “International trade and investments may shrink, but they will not disappear entirely… There will still be overseas markets, and opportunities for international partnerships.”

Continued foreign direct investment (FDI) inflows suggest that manufacturing will still play a big role in Singapore’s growth, said HSBC Global Research chief economist Joseph Incalcaterra. “The post-Covid world will likely require more semiconductors as digitisation and 5G trends accelerate, along with pharmaceutical products, for obvious reasons.

“Singapore is well positioned in both sectors, and as a result, we expect growth to bounce back sharply next year. Growth in Singapore is likely to outperform other regional economies next year.”

While a less-globalised world will mean less FDI to go around, Singapore continues to provide generous incentives, and there is scope for continued upgrading in manufacturing as Singapore becomes an increasingly attractive research and development hub, he added.

Before Covid-19 hit, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye had expected growth of 2.3 per cent in 2020. They now expect a 7 per cent contraction, with the deepest plunge in the second quarter due to the circuit breaker, followed by some recovery in the second half and 2021.

“Growth will likely muddle through around 0 to 2 per cent in the medium-term in a pandemic economy,” they said. In a post-pandemic world after a vaccine is found, growth may return to 1 to 3 per cent.

However, this assumes Singapore remains open to foreign labour, they warned: “Adopting overly strict immigration and foreign worker policies will reduce GDP growth to near zero by the middle of the decade.”

In a study for the Asia Competitiveness Institute, researchers Tilak Abeysinghe and Tan Kway Guan estimated that, assuming the Covid-19 effect withers away after three quarters, a recovery within about six quarters is likely for all of Singapore’s sectors except construction.


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