Economic recovery on track despite month-long economic halt: Maybank

But a high risk of inflation overshooting.

The Singapore economy’s recovery is on track, despite the month-long implementation of Phase 2 (Heightened) alert in the island state according to Maybank Kim Eng.

Maybank’s co-head of macro research, Dr Chua Hak Bin said Singapore’s GDP will grow by 6.2% in 2021, despite the heightened measures brought out by a resurgence of the COVID-19 virus in the city-state.

“Stronger external demand from the reopening in US & Europe will offset weaker domestic spending. F&B services account for only 1% of GDP. Retail can remain open but face lower traffic, accounting for 2% of GDP. Ban on South Asian workers will impact construction, marine and processing sectors,” Dr. Chua said.

This is further supported by Maybank’s head of research at Singapore, Mr Thilan Wickramasinghe who placed most sectors in the positives, namely Banks & Financials, Healthcare, Land Transport, REITs, Tech, and Telcos.

Singapore’s Strait Times Index (STI) is also up 10% YTD, which Wickramasinghe said is “one of the better performing markets regionally.”

K-Shaped job recovery and threats of inflation

Dr Chua said there is a risk of inflation overshooting more than 2%.

“With both cyclical and structural factors at play, peak in June/July due to base effects. MAS raised headline inflation forecast to +0.5% to +1.5%. We forecast average headline inflation at +1.3% and core inflation at +0.9% for 2021,” he added.

Chua said that base case for the Monetary Authority of Singapore to maintain neutral policy stance in October 2021, but there is around 30% probability of a tightening to a “slight appreciation bias” on October meeting if inflation overshoots and the economy reopens.

With some sectors rapidly recovering and some struggling, Singapore is also seeing a “k-shaped job recovery.”

Total employment, excluding migrant domestic workers grew by 12.2k in Q1 after shedding around 167,000 in 2020. Unemployment rate peaked at 3.5% in Q3 2020 but has eased to 2.9% in Mar 2021, cushioned by wage subsidies. Meanwhile, resident employment is above pre-pandemic levels, but non-resident employment languishing. Returning Singaporeans supporting property rental demand.

Banks and financial sector the most resilient

The banking and financial sector remained the most resilient all throughout.

Continued fiscal and monetary stimulus measures, especially towards frontline COVID sectors, are keeping a lid on NPL growth whilst economic rebound in North Asia, Singapore and developed markets are further supporting asset quality as well as interest income.

Maybank’s Wickramasinghe said that non-interest income should see YoY improvements from increased wealth flows, loan fees and transaction fees whilst the steepening yield curve and higher loan growth expectations (+7% YoY in 2021E) should be NIM supportive as the sector puts excess liquidity to work.

However, Wickramasinghe observed that there is a potential upside risk to dividends in H2 2021 should MAS follow OECD regulators and relax caps.

The long view

Aside from GDP growth, Maybank predicts stricter foreign manpower and Immigration policies and development of a “Singapore Core” in the workforce.

The future also sees the expansion of social safety nets like unemployment insurance and broadened coverage of progressive wage models.

2022 will also see the hike in the goods and services tax as well as a possible personal income tax and wealth tax.

Singapore will also benefit from shifting supply Chains to ASEAN and the US-China trade & tech war. Maybank also predicts the country will also set its sights on growing a green economy and maintaining its status as a trade and business hub.