Felicia Tan Published on Wed, Jun 30, 2021 

Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) announced that Singapore’s GDP growth could exceed the upper end of the 4% to 6% range that was forecasted by the Ministry of Trade and Industry (MTI).

This is, of course, with the exception of any setbacks to the global economy.

Menon made these remarks in his virtual speech at the MAS Annual Report 2020/2021 on June 30.

MTI, on May 25, maintained its growth forecast of 4% to 6% for the full-year 2021 after a better-than-expected showing in the 1Q2021 of a 1.3% expansion y-o-y.

This was due to the deterioration of the resurgence in Covid-19 cases in the Republic and the subsequent Phase Two (Heightened Alert) measures introduced.

The forecast range will be reviewed in August by MTI and MAS when preliminary estimates for the 2Q2021 GDP are available, says Menon.

During the 1Q2021, the Singapore economy gained back the aggregate output loss incurred during the Covid-19 pandemic.

However, the recent tightening of domestic restrictions and border controls will cause a “near-term setback” to segments – especially the consumer-facing and travel-related industries, as well as construction and marine & offshore engineering activity – that make up about 8% of the economy, he reveals.

That said, as the majority of businesses remain in operation, the economic impact arising from the current restrictions will be “significantly less severe”.

To this end, the broader economy should see a recovery in the 2H2021 amid stronger global demand and progress in the vaccination programmes.

The global economy, which is expected to expand by 5.8% in 2021 following 2020’s 3.0% contraction, has “probably already regained its pre-pandemic level of output”.

To this end, “trade-related activities such as manufacturing and wholesale trade will be supported by resilient global trade flows and robust upswing in the global tech cycle,” says Menon.

“Modern services, particularly the financial and ICT sectors, are set to expand at a firm pace this year, amid a pickup in credit intermediation activities and the ongoing digitalisation of business processes which has been accelerated by the pandemic,” he adds.

As total employment expanded 14,000 in the 1Q2021, Menon says he expects the resident unemployment to continue to decline gradually.

That said, the near-term impact on resident employment due to the Phase Two (Heightened Alert) measures should be mitigated by policy support such as enhanced wage support and rental waivers and rebates.

Singapore’s core inflation should be on the road to recovery with the forecast for 2021 kept at a range of 0% to 1%.

The CPI-All Items inflation forecast has increased to 1.0% to 2.0% from 0.5% to 1.5%, which takes into account higher-than-expected car prices in the 2Q2021.

That said, CPI-All Items inflation should ease by the 2H2021 as the base effects from 2020 fade.

Financial sector performance

In the 1H2021, the financial services sector was estimated to have grown by 6%, compared to the 5.1% growth in the full-year 2020.

The growth has been broad-based across the sector.

Assets under management (AUM) in Singapore grew by 17% y-o-y to $4.7 trillion as at end-2020 due to “strong inflows from traditional and alternative investment strategies as well as valuation gains across major asset markets”, says Menon.

Investments in the FinTech sector grew 30% y-o-y from 2019 to reach a record $1.4 billion in 2020.

In the 1Q2021, FinTech companies in Singapore have already raised over $650 million.

The financial sector is also expected to create about 6,500 new hiring opportunities in 2021 with demand in areas such as technology, wealth management, corporate banking and insurance.

MAS’s financial performance

During the FY2020/2021, MAS saw an investment return of $8.2 billion from the Official Foreign Reserves. This was mainly from interest income and realised capital gains, and offset by a negative currency translation effect of $14.6 billion due to the stronger SGD against the USD and JPY.

MAS made a net profit of $5.2 billion for the FY2020/2021 after deducting $1.9 billion of expenses for domestic money market and other operations, as well as a $1.1 billion contribution to the government’s consolidated fund as payment in lieu for corporate income tax.

The central bank will return $2.6 billion – amounting to half its profits – to the government. The remainder will be added to its reserves.