THE pace of Singapore's recovery is expected to moderate in the quarters ahead, with this recovery likely to be more prolonged than in past recessions, according to the Monetary Authority of Singapore's (MAS) twice-yearly Macroeconomic Review on Wednesday.
Some pockets of the economy may not recover to pre-pandemic levels even by the end of 2021. In particular, "activity in travel-related and some contact-intensive domestic services could still fall short of pre-pandemic levels until health risks abate", said the report.
Unemployment, too, will only edge down gradually in 2021, from its peak in the second half of 2020.
The third quarter saw a rebound from Q2's unprecedented contraction, but Singapore's overall gross domestic product (GDP) in Q3 was still about 7 per cent below the pre-Covid level in Q4 of 2019.
Furthermore, the Q3 rebound was due to the resumption of business activities after the end of "circuit-breaker" measures. With most activities having resumed, this supply-side boost will taper off in the quarters ahead, said the report.
On the demand side, firms and households will continue to hold back on investment and discretionary spending, due to income loss and increased uncertainty.
The economy's growth momentum is thus expected to slow in Q4 and remain modest in 2021, despite some support from further work resumption in industries reliant on foreign workers.
The MAS reiterated the official forecast range of a 5 to 7 per cent contraction for the economy this year, with above-trend growth in 2021 due in part to the low-base effect in 2020.
The report noted that in previous recessions, Singapore's economy took about four quarters to fall from peak to trough. In this Covid-19 recession, the trough occurred by Q2 and was much deeper.
In past recessions, recovery was fairly symmetrical to the decline, with the economy taking three quarters to return from the trough to its pre-crisis level.
Now, however, the momentum of Q3's rebound is unlikely to be sustained, and without wide-scale vaccination programmes in Singapore and globally, "the threat of repeated outbreaks will continue to generate economic uncertainty, hampering a more decisive recovery", said the report.
Similarly, beyond the immediate rebound, the recovery in employment is likely to be uneven and slow. The resident unemployment rate "is likely to stay elevated in 2021", keeping wage growth low.
Unlike the Global Financial Crisis, where the resident unemployment rate returned to pre-crisis levels after six quarters, the unemployment rate in the current crisis will likely decline more gradually, said the report.
The MAS kept to its forecast ranges of -0.5 to 0 per cent for headline and core inflation 2020, rising to between -0.5 and 0.5 per cent in 2021 for headline and 0 to 1 per cent for core inflation in 2021.
Monetary policy will remain accommodative for some time, to "support the Singapore economy through the fragile recovery and ensure medium-term price stability", said the MAS.
Even as core inflation turns mildly positive in 2021, it will remain below its long-term average for an extended period, said the report. Negative output gaps will persist globally and accumulated spare capacity in the Republic will also take time to be absorbed, keeping both external and domestic cost pressures low.
Global growth is forecast to return to trend in 2022, but from a lower end-2021 level than before the Covid-19 shock, thus leaving the global economy on a permanently lower GDP trajectory. At end-2021, global GDP is forecast to be 4 per cent below the level projected before Covid-19.