Due to the impact of the Covid-19 pandemic, Singapore’s overall economy contracted by more than 5% in 2020.
The Republic of Singapore is a metropolitan city-state and island country in Southeast Asia with a total land area of an estimated 714.3 square kilometres. It is situated at the southern tip of the Malayan Peninsula, between Malaysia and Indonesia.
With an economy supported by its growing population of approximately 5.7 million people, Singapore has witnessed remarkable record of sustained economic growth throughout the years and bolsters its role as a global commerce, finance and transportation hub.
Due to the impact of the Covid-19 pandemic, Singapore’s overall economy contracted by 5.4% in 2020. Although the services sector contracted by 6.4% in 2020, the services sector is forecasted to remain the largest contributor to Singapore’s Gross Domestic Product (GDP) from 2021 to 2025. The recovery is projected to be led by financial services and logistics activities.
Tourism remains an important pillar in driving economic growth in Singapore. According to the Department of Statistics Singapore, the accommodation sector contributed 0.4% to Singapore’s nominal GDP in 2020.
In 2020, tourism arrivals have slumped to 2.7 million from 19.1 million in 2019 due to the travel disruption caused by Covid-19. Activity in the hotel investment has also been soft in 2020, with only two inbound hotel transactions, contributing to an investment volume of 539 million amidst the global economy uncertainty.
Source: HVS Research
In 2020, the global economic growth was impacted by the Covid-19 pandemic which has resulted in countries going on lockdown and stock markets to plunge. Activities around the world had seemingly come to a halt with travelling restricted and work-from-home becoming a new normal.
US-China political tension continues to be uncertain, along with the plans for Brexit. With growing uncertainties in the geopolitical landscape and global market pressures, international trade and investment activities have softened and is expected to remain subdue. According to the World Bank, global economic growth is projected to expand at 4% in 2021, albeit a slow recovery from 4.3% contraction in 2020.
Figure 1: Economic Outlook
Source: Economist Intelligence Unit, March 2021
Economic Performance & Outlook
Given the reliance of Singapore’s economy on global economic outlook, the weakening of the global economy due to the Covid-19 pandemic has resulted in a 5.8% contraction in real GDP in 2020.
Recovery is expected in 2021 with an expansion of 5.1% as economic activities gradually resumes and consumer sentiment improves with the implementation of a city-wide vaccination programme. Nonetheless, external demand is likely to remain weak as access to vaccine remains uneven in other parts of the world.
Currency Exchange Outlook
In April 2020, the Monetary Authority of Singapore (MAS) has set the rate of appreciation of the nominal effective exchange rate (NEER) policy band at zero percent per annum, starting at the then-prevailing level of NEER.
Economist Intelligence Unit (EIU) expects the Singapore dollar to experience a marginal appreciation in 2021 on the back of a weaker greenback, reaching S$1.36:US$1 in 2021 compared to S$1.38:US$1 the year before.
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