Annual GDP surpasses pre-pandemic levels

■ Singapore’s economy cooled in 4Q21 to grow at 5.9% yoy, placing 2021’s GDP growth at 7.2%, the fastest annual growth rate in more than a decade.
■ The manufacturing sector accelerated sharply in 4Q21, rising by 14.0% yoy, ending 2021 with a 12.8% growth overall amidst semiconductor shortages.
■ Construction, remaining tepid due to labour shortages, is pushing up rental rates. Meanwhile, the services sector’s recovery remains uneven.

Strong finish delivers highest annual GDP growth in over a decade

Singapore’s economy cooled in 4Q21 to grow by 5.9% yoy vs. 7.1% yoy growth in the quarter before but beat both our and consensus’ estimates. All components of goods producing industries and services producing industries contributed positively to 4Q21’s growth. On a seasonally-adjusted (SA) basis, the economy accelerated alongside its border reopening, rising sequentially by 2.6% qoq SA in 4Q21 vs. 1.2% qoq SA the quarter before. The strong advance estimates performance of Singapore’s economy in the fourth quarter places 2021’s GDP growth at 7.2%, bringing its annual GDP above pre-pandemic 2019 levels by 1.4% following 2020’s nosedive of 5.4%. The annual growth rate of 7.2% in 2021 is the fastest in more than a decade (2010 GDP growth rate: 14.5%)

Manufacturing registers sixth consecutive quarter of yoy growth

The manufacturing sector accelerated sharply in 4Q21, growing by 14.0% yoy (vs. 7.9% yoy in 3Q21), ending 2021 with a strong 12.8% overall growth. In 4Q21, the growth was driven by all manufacturing clusters; however, the electronics and precision engineering clusters performed exceptionally well on the back of sustained global demand for semiconductors and semiconductor manufacturing equipment respectively. On a SA basis, manufacturing output hastened to 4.2% qoq SA (vs. 0.2% qoq SA in 3Q21) as a result of Nov 21’s IPI SA value reaching record levels in Singapore. Alongside the industry’s top executives, we too expect the ongoing global chip shortage to persist until 2023F, hence we foresee the trend of Singapore’s manufacturing driving growth to continue despite having already seen yoy growth for six consecutive quarters.

Labour shortages and tepid construction raise rental rates

The construction sector decelerated sharply in 4Q21, rising by only 2% yoy vs. a 66.3% rise the quarter before. The construction sector has faced an exceptionally volatile two years amid circuit breaker measures, and still remains 26.0% below its pre-pandemic 4Q19 level. Activity in the sector continues to remain troubled as a result of labour shortages due to border restrictions on the entry of migrant workers. On a SA basis, the construction sector reversed its trend and contracted by 4.4% yoy following a growth of 4.9% yoy the quarter before. The lack of new construction work is likely to elevate accommodation inflation into 2022. Indeed, Singapore’s private home rental price index has already risen
to its highest level in six years.

Services remain below pre-pandemic levels due to uneven recovery

Services producing industries as a whole rose by 4.6% yoy in 4Q21 (vs. 6.2% yoy in 3Q21), finishing the year with a 5.2% growth in 2021. Services, as a whole, is still 2.1% below 2019’s level. The upside to this is that for 2022, there is room for it to be a driver of growth as it returns to normalised levels. Wholesale & retail trade and transportation & storage collectively rose in 4Q21 by 4.3% yoy. Wholesale trade posted steady growth in tandem with export growth, while transportation & storage grew as a result of a low base. Information & communications, finance & insurance and professional services sectors collectively grew by 6.0% yoy in 4Q21 (vs. 8.0% yoy in 3Q21). Information & communications and finance & insurance performed exceptionally well in 2021, and we expect this growth to continue into 2022F on the back demand for IT solutions and the need for financial services to redistribute liquidity respectively. The remaining group of services sectors, which include accommodation & food services, grew by 3.1% yoy.