Opening Remarks by PS Mr Gabriel Lim for Economic Survey of Singapore for 3Q 2021

1 Good morning and welcome to this virtual media conference.

2 Details of Singapore’s economic performance for the third quarter, and the outlook for 2021 and 2022 are contained in the press release. Let me highlight a few key points.

3 In the third quarter of 2021, the Singapore economy grew by 7.1 per cent on a year-on-year basis, bringing GDP growth in the first three quarters of the year to 7.7 per cent. On a quarter-on-quarter seasonally-adjusted basis, the economy expanded by 1.3 per cent, a turnaround from the 1.4 per cent contraction in the second quarter. 

4 Since the last Economic Survey of Singapore media briefing in August, the global economy has performed broadly in line with expectations. 

• Advanced economies which have achieved high vaccination rates and also started booster shots, such as the US and key Eurozone economies, have largely removed restriction measures. This has helped to sustain their economic recoveries. 

• By contrast, COVID-19 outbreaks and the re-imposition of restrictions had disrupted the recoveries of key Southeast Asian economies, although some of these restrictions are being gradually lifted as their domestic health situations stabilise. 
• In China, economic growth is expected to come in slower than earlier anticipated due to its property market downturn, energy crunch, as well as sluggish consumption growth.

5 Domestically, travel and domestic restrictions have continued to weigh on the recovery of our aviation- and tourism-related sectors, as well as consumer-facing sectors. However, growth in outward-oriented sectors such as electronics and finance & insurance has been stronger than expected. The recent easing of border restrictions on the entry of migrant workers will also alleviate some of the ongoing labour shortages in the construction and marine & offshore engineering sectors, and support their recovery.

6 Taking these factors into account, Singapore’s GDP growth forecast for 2021 is narrowed to “around 7.0 per cent”, from “6.0 to 7.0 per cent”.

7 Looking ahead to 2022, GDP growth in most advanced economies is expected to moderate but remain above pre-COVID trend rates. China’s growth is also projected to slow due to its property market downturn, constraints imposed on energy use, and adherence to a zero-COVID policy, which could dampen consumption growth. By contrast, key Southeast Asian economies are expected to see faster growth in 2022 as they progressively resume more economic activities. Meanwhile, supply bottlenecks and disruptions could continue to weigh on industrial production in some external economies in the near term.

8 At the same time, downside risks in the global economy remain. 

• In particular, the trajectory of the COVID-19 pandemic remains a risk. While vaccination rates have picked up in many economies, there are concerns over waning vaccine efficacy and potential mutations of the virus. Hence, even in economies with high vaccination rates and booster rollouts, infections could still rise and weaken their recovery. 

• There is also a risk that ongoing global supply disruptions could be more protracted than expected, which would then constrain global industrial production for longer and exacerbate inflationary pressures.

• Should inflation be more persistent than expected, there could be an earlier or larger increase in interest rates than anticipated, thereby triggering a tightening of global financial conditions.

9 Domestically, our high vaccination rate and steady rollout of booster shots will continue to facilitate the progressive easing of domestic and border restrictions. This will support the recovery of consumer-facing sectors and alleviate labour shortages in sectors that are reliant on migrant workers. Air travel and visitor arrivals are also expected to improve with the loosening of travel restrictions and expansion of Vaccinated Travel Lanes.

10 Against this backdrop, the recovery of the various sectors of the economy is expected to remain uneven in 2022.

• First, the growth prospects for outward-oriented sectors such as manufacturing and wholesale trade remain strong given robust external demand. 

• Second, the recovery of the aviation- and tourism-related sectors is likely to be gradual as global travel demand will take time to recover and travel restrictions could persist in key visitor source markets. Overall, activity in these sectors is expected to remain below pre-COVID levels throughout 2022.

• Third, consumer-facing sectors are projected to recover as domestic restrictions are progressively eased, and consumer sentiments improve. Nonetheless, the food & beverage services sector is not likely to return to pre-COVID levels by end-2022 as some dine-in and event restrictions could remain in place, while the recovery in visitor arrivals is expected to be slow. Similarly, some segments of the retail trade sector, such as department stores, are likely to remain lacklustre, in part due to weak visitor arrivals.

• Fourth, activities in the construction and marine & offshore engineering sectors are projected to continue to recover on the back of the progressive easing of border restrictions on the entry of migrant workers. Nonetheless, as it will take time to fully address the labour shortfall, labour shortages are likely to continue to keep the output of the two sectors below pre-pandemic levels in 2022.

11 Taking these factors into account, and barring the materialisation of downside risks, the Singapore economy is expected to grow by “3.0 to 5.0 per cent” in 2022. 

12 Turning now to inflation, like many other economies around the world, inflation has picked up in Singapore in recent months. As a small and open economy, this has come largely on the back of higher external inflation due to increases in global energy and food commodity prices, and persistent supply bottlenecks in key global industries and transport hubs. 

13 Domestically, wages have also risen as the economy and labour market recover. In the first half of 2021, nominal resident wages rose by 1.8 per cent on a year-on-year basis, faster than the 1.4 per cent increase in 2020. This has contributed to higher services inflation. Private road transport inflation and accommodation inflation have also picked up due to higher car prices and housing rental respectively. 

14 In 2022, external inflationary pressures are likely to remain elevated, while wage growth is expected to strengthen as the domestic labour market continues to recover. Furthermore, as the domestic COVID-19 situation stabilises, consumer demand should improve, and higher business costs that are not fully offset by productivity increases could pass through to consumer prices. Against this backdrop, CPI-All Items inflation is projected to come in at “around 2 per cent” this year, and average “1.5 to 2.5 per cent” in 2022. 

15 Amidst the pickup in inflation, the Government remains committed to helping Singaporeans from lower-income households who need support for their basic living expenses. For example, the Government will continue to provide assistance through ComCare and the permanent GST Voucher scheme, which includes rebates for utilities such as electricity costs. The Government has also provided grocery vouchers to eligible Singaporeans under the Budget 2020 Grocery Vouchers Scheme.

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