Macro snapshot: Omicron, the unwanted gift

■   Despite having just announced a new set of restriction easing on 14 Dec, the government had to halt VTL ticket sales on 23 Dec due to Omicron concerns.
■   As a result of the ongoing global chip shortage, electronics and precision engineering contributed to 70% of manufacturing’s growth in 11M21.
■   Core inflation remains within the government’s target. However, a fifth consecutive month of acceleration signals rising pass-through opportunities.

Omicron dampening reopening ideas for the Singapore economy
On 14 Dec, the government announced a series of new measures aimed at easing restrictions for those who have been vaccinated. From 1 Jan 2022, 50% of employees who are currently working from home will be allowed to return to the office after working from home became the default setting since Sep 2021. Moreover, the government decided to expand the vaccination differentiated safe management measures (VDS) for Covid-19 to cover even more areas from 1 Feb (see Fig. 10). However, bad news came in the middle of this week as Singapore announced on 22 Dec that it will be halting sales for flights and bus trips under its vaccinated travel lanes (VTL) from 23 Dec 2021 until 20 Jan 2022 amid Omicron variant importation fears. The move will apply to all 24 countries which Singapore has VTL agreements with; however, the upside is that people who have already bought tickets before the freeze can continue to enter Singapore. As of 23 Dec, the number of Covid-related patients in ICU sits at only 26 (see Fig. 1). On the other hand, with the CDC announcing earlier this week that the Omicron variant alone accounts for 73% of new cases in the US, we believe hitting the brakes on new arrivals may be the prudent decision.

Retail sales on track to surpass 2019 levels by 2022
In Oct 2021, retail sales rose by 7.5% yoy (vs. +6.8% yoy in Sep 2021), driven predominantly by computer & telecom equipment (+72.9% yoy) which rose on the back of higher mobile phone sales due to new product launches. Watches & jewellery also experienced considerable gains, rising 26.9% yoy, due to greater demand for watches, whilst sales in petrol service stations rose 16.3% yoy in Oct due to surging petrol prices. Retail sales are poised to finish the year off strongly; however, we expect retail sales to exceed pre-pandemic 2019 levels only in 2022. Most retail components have either made steady recoveries this year or did not even contract in 2020; however, dept. stores, in particular stood out as laggards, and are likely to continue staying so as a result of Omicron.

Electronics & precision engineering 70% of IPI’s 11M21 growth
Manufacturing activity in Singapore decelerated slightly in Nov 2021, rising by 14.6% yoy (vs. +17.0% yoy in Oct 2021), putting the city-state’s 11M21 manufacturing performance up by 13.0% yoy. On a seasonally-adjusted (SA) basis, manufacturing output rose once again, growing by 2.3% mom SA (vs. 2.4% mom SA in Oct). The top contributors to growth in Nov were electronics (+10.2% yoy), transport engineering (+31.3% yoy), biomedical manufacturing (+20.1% yoy). Electronics and precision engineering made up for about 70% of the IPI’s growth in 11M21 amid a global chip shortage that is likely to last until 2023F.

Core inflation accelerates for 5th consecutive month towards target
Singapore’s headline inflation accelerated for the fourth month in a row in Nov, surging to 3.8% yoy, its highest level in over 8 years (Feb 2013: +4.9% yoy). Meanwhile, the core inflation accelerated for its fifth consecutive month, reaching a yoy increase of 1.6% in Nov. The story matches what we saw in the previous month: the majority of the uptick in headline inflation was driven by private transportation, whist core inflation remained within the target of “just under 2%”. Nearly 60% of Nov’s headline inflation was driven by private transportation alone, which rose by 17.9% yoy in Nov, driven by rising COE prices and elevated petrol prices (+29.6% yoy). Core inflation still has some leeway to rise, albeit a diminishing one, but should continue to face upwards pressures from Singapore’s rising PPI (+25.4% yoy in Oct) and improving labour market conditions (unemployment: 2.6% in Oct) moving into the new year. We forecast a 2021F core inflation of 0.9%.