Delivered Remarks by PS at Release of Third Quarter 2020 Economic Survey of Singapore

1 Good morning and welcome to MTI.

2 I will highlight the key points from the press release.

3 In the third quarter of 2020, the Singapore economy expanded by 9.2 per cent on a quarter-on-quarter seasonally-adjusted basis, a turnaround from the 13.2 per cent decline in the second quarter. On a year-on-year basis, the economy shrank by 5.8 per cent, a smaller contraction than the 13.3 per cent decline in the second quarter.

4 The improved performance of the Singapore economy came on the back of the phased resumption of activities in the third quarter following the Circuit Breaker that was implemented from 7 April to 1 June 2020, as well as the rebound in activity in major economies during the quarter as they emerged from their lockdowns.

5 While most sectors continued to contract on a year-on-year basis in the third quarter, growth in selected sectors lent support to the overall economy. In particular, the manufacturing sector registered a robust expansion, driven largely by the electronics, biomedical manufacturing and precision engineering clusters. Among the services sectors, the finance & insurance and information & communications sectors expanded, supported by healthy growth in the banking and insurance segments, and resilient demand for enterprise IT solutions, respectively.

6 Taking into account our economic performance in the third quarter, the Singapore economy contracted by 6.5 per cent on a year-on-year basis in the first three quarters of the year.

Economic Outlook for 2020

7 Since the Economic Survey of Singapore media briefing in August, the global economic situation has remained subdued. While some economies like China are expected to see a sustained recovery for the rest of 2020 as their domestic COVID-19 outbreaks remain under control, others like the US and Eurozone are experiencing a resurgence in infections, which may dampen their recovery as restrictions are re-imposed to slow the spread of the virus.

8 Domestically, weak external demand conditions and ongoing global travel restrictions are expected to continue to weigh on trade-related services sectors like wholesale trade, as well as aviation- and tourism-related sectors like air transport and accommodation. While consumer-facing sectors such as retail and food services have recovered from their troughs with the phased re-opening of the economy, sales volumes are likely to remain below last year’s levels due to dampened consumer sentiments and capacity constraints imposed by safe management measures. On the other hand, the outlook for the manufacturing sector has improved, driven primarily by the electronics cluster on the back of robust semiconductor demand.

9 Taking these factors, and Singapore’s economic performance in the first three quarters of the year, into account, the GDP growth forecast for 2020 is narrowed to “-6.5 to -6.0 per cent”, from “-7.0 to -5.0 per cent”. Economic Outlook for 2021

10 For 2021, the major advanced and developing economies are expected to recover from the massive economic disruptions caused by COVID-19, and see a rebound in their GDP from the low base this year. However, the path to recovery is expected to be slow and uneven across economies, with many economies not likely to recover to pre-COVID levels until end-2021.

• In the US, the resurgence in COVID-19 cases, and pause or reversal in the re-opening measures in some states is likely to weigh on the labour market and dampen the recovery in personal consumption.

• Similarly, the resurgence in COVID-19 cases and the re-tightening of restrictions in the Eurozone economy is expected to pose a drag on consumer and business sentiments, as well as weigh on the labour market.

• In Asia, China is expected to maintain a robust pace of growth, supported by strong investment spending. Within ASEAN, growth in the key economies is expected to pick up alongside the improvement in global economic conditions.

11 At the same time, uncertainties and risks in the global economy remain.

• First, notwithstanding positive news on vaccine development, as well as advancements in therapeutics and testing, the risk of periodic resurgence of infections around the world remains. The re-imposition of lockdowns, even in a limited way, could dampen business and consumer confidence, and pose a drag on the global economic recovery.

• Second, the protracted nature of the economic recovery in many countries could cause renewed pressures on corporate and financial sector balance sheets, which could in turn lead to financial system stresses and financial market dislocations such as capital outflows from emerging market economies. These could then trigger feedback loops and negatively affect the global economy.

• Third, amidst elevated uncertainty surrounding the COVID-19 situation, there is a higher risk of a miscalibration of policy settings which, together with tightening funding conditions, could result in a premature withdrawal of policy support in the key economies, thereby impeding their recovery.

• Fourth, there continues to be geopolitical uncertainty involving the major economies, which could in turn weigh on global trade and the global economic recovery.

12 On balance, given the improved growth outlook for key external economies, as well as a further easing of global travel restrictions and domestic public health measures that is expected in the year ahead, the Singapore economy is projected to return to growth in 2021.

• First, trade-related services sectors such as wholesale trade are expected to benefit from the pickup in external demand. At the same time, the manufacturing sector is projected to continue to expand, with growth in the electronics and precision engineering clusters boosted by robust semiconductor demand from the 5G market. Likewise, growth in the information & communications and finance & insurance sectors is expected to remain healthy.

• Second, aviation- and tourism-related sectors such as air transport and accommodation are projected to see a gradual recovery in air passenger volumes and visitor arrivals. Similarly, consumer-facing sectors like retail and food services are expected to benefit from the recovery in visitor arrivals, as well as an improvement in consumer sentiments. However, economic activity in these sectors is not likely to return to pre-COVID levels even by end-2021.

• Third, the construction sector is projected to recover from the low base this year, although construction activity will continue to be dampened by the implementation of safe management measures.

13 Taking these factors into account, the Singapore economy is expected to grow by “4.0 to 6.0 per cent” in 2021. However, while growth is expected to rebound from the low base this year, our economic recovery is expected to be gradual, with GDP not likely to return to pre-COVID levels until the end of 2021. Furthermore, there remains uncertainty over how the COVID-19 situation will evolve globally in the year ahead, which will depend in part on the progress in vaccine development, production and distribution. This will, in turn, have an impact on the trajectory of the global economy, and hence Singapore’s economy. Domestically, our economic recovery will also depend on whether we are able to keep the COVID-19 situation under control. MTI will continue to monitor developments closely.

14 Before my panel members and I take questions, I would like to take this opportunity to draw your attention to the Feature Article on Singapore’s productivity performance published in this quarter’s Economic Survey of Singapore. The article highlights that Singapore’s labour productivity growth, measured in terms of real Value-Added per Actual Hour Worked, rose by 2.8 per cent per annum over the past decade, within the productivity growth target of 2 to 3 per cent per annum set by the Economic Strategies Committee in 2010. Our productivity growth performance during this period was also better than that of most advanced economies. Overall productivity growth was driven by outward-oriented sectors like manufacturing, and supported by improvements in capital intensity, labour quality as well as total factor productivity. More details on the international comparisons and drivers of Singapore’s productivity growth can be found in the Feature Article.

15 Together with my panel members, I am now happy to take your questions.