Country Focus

Government spending to spur a steady rebound, countering 2020’s record contraction

2020 saw Singapore’s worst economic contraction on record, with a forecast of -6.0% for the full year. The Construction and Services sectors have borne the brunt of the decline. However, we expect a U-shaped recovery with a brighter outlook for Singapore in 2021.

The economy is expected to grow by +5.0%, driven by the outsized government spending to support jobs and provide rent relief. This will dampen the potential for the pandemic to create long-term structural damage to the economy.

Lower domestic and tourism-led demand, plus low oil prices, is expected to keep inflation muted. Yet three factors are expected to contribute to Singapore’s gradual recovery: The improving COVID-19 situation, with minimal community infections since late August 2020; steady reopening of the economy since the end of the circuit breaker, with the government exploring air travel bubbles to reopen borders to international visitors and trade; and greater support for the biomedical industry amid stronger global pharmaceutical-related demand (Figure R1).

Equities

Singapore equities will likely benefit from global monetary stimulus and generous COVID-19 government support packages. However, the recovery is expected to be uneven. For instance, property developers, industrial and office REITs should be less affected due to their larger cash buffers and longer lease expiries. Meanwhile, banks, along with transport and aviation companies, may underperform due to rising credit risks and delayed recovery in demand respectively.

Fixed Income

Domestic government bond yields will likely remain low for 2021, but still trend higher than US Treasury yields. While credit spreads are expected to tighten further in 2020 and early-2021, investment grade (IG) corporate bonds will provide a defensive stance and higher yield pick-up. Inflation for Singapore is expected to remain subdued in 2021.

Currency

Since Q2 2020, the SGD has shown a positive correlation with the Chinese Renminbi (CNY). Given the expected gains in the CNY going forward, there is room for SGD to appreciate against the USD to 1.32 by the end of Q1 2021, and to 1.30 by Q3 2021.