Economy

SUSTAINED MACROECONOMIC CONDITIONS

LOWER FOR EVEN LONGER

Singapore’s interest rate is pegged to the U.S. Federal Reserve’s federal funds rate, which have been kept near zero since Mar 2020. This trend is expected to be maintained moving into 2021, with the Fed signalling their intention to hold rates near zero through at least 2023. In addition, the inflation outlook for 2021 seems to indicate some recovery, in line with the gradual recovery of the economy. According to the Ministry of Trade and Industry (MTI), core inflation is estimated to average 0 to 1% in 2021, while headline inflation is projected between -0.5% to 0.5%. To facilitate the gradual recovery in inflation, the Monetary Authority of Singapore (MAS) is likely to retain an accommodative policy stance in 2021.

Taking these aforementioned factors into consideration, this could translate to lower interest rates in the long term.

IMPLICATIONS TO REAL ESTATE

Prolonged low interest rates will accentuate the attractiveness of commercial real estate investments, especially those that can provide stable returns.

EXPANSIONARY FISCAL STIMULUS

While Singapore’s GDP registered a full-year contraction in 2020, the $100 bn injected via the four financial stimulus packages – namely the Unity, Resilience, Solidarity and Fortitude Budgets – have helped to cushion the economic impact of the COVID-19 outbreak. It is estimated that the four Budgets helped to avert a 5.5% loss in Gross Domestic Product (GDP) in 2020.

With the economy continuing to seek stability and the global pandemic situation continuing to run its course, Budget 2021 is expected to also be expansionary, which will provide some positive fiscal stimulus. However, it is likely to be smaller-scaled and more calibrated, as the pandemic has been controlled locally.

GRADUAL & UNEVEN RECOVERY

The COVID-19 outbreak took a toll on Singapore’s economy in 2020, registering a full-year contraction of -5.8% based on the MTI’s advance estimates. Brighter prospects are expected for the local economy towards the latter half of 2021 – CBRE Research forecasts a 5.6% y-o-y GDP growth in 2021, with the pandemic contained locally and access to vaccination secured.

Nonetheless, while Singapore’s GDP is poised to exhibit a recovery in 2021, this is likely to be a slow and uneven one, as border controls remain tight with the COVID-19 situation in other countries remaining volatile. Moreover, while Singapore has entered Phase Three of the safe re-opening process starting from 28 Dec 2020, social distancing measures remain, which could slow the economic recovery process.

SERVICE AND CONSTRUCTION SECTORS TO LEAD, AVIATION AND TOURISM-RELATED SECTORS LAG BEHIND

The recovery in 2021 is poised to be led by the service and construction sectors on the back of the increased size limits of social gatherings and capacity limits of various premises, as well as resumption of construction activities. This is up from the low base in 2020, contributed by strict social distancing measures and the “circuit breaker” period which was imposed from 7 Apr to 1 Jun 2020.

On the flipside, the aviation and tourism-related sectors are likely to continue seeing sluggish performances for some time with border controls remaining tight, as other nations continue to manage the COVID-19 outbreak. While domestic tourism efforts such as the Singapore Tourism Board’s SingapoRediscovers Vouchers scheme may provide some respite to the ailing tourism sector, these are unlikely to compensate for the loss of foreign tourism.

Looking ahead, while an economic recovery is in the works, the overall outlook for the year remains uncertain, with most of the government measures slated to expire this year, such as the co-funding of wages which will end by Mar 2021. Uncertainties and underlying risks remain, as the pandemic continues to evolve globally.

NEW REGIONAL OPPORTUNITIES

International trade plays a critical role in Singapore’s economy, with Singapore being an air and sea cargo regional hub due to its strategic geographical location and connectivity to other countries. However, both air and sea trade saw steep declines in early 2020 following the COVID-19 outbreak, reaching peak lows of -40.0% and -10.6% respectively on a y-o-y basis in May 2020.

While there have been signs of recovery towards the latter half of 2020, air cargo movements continued to register a y-o-y decline at -15.5% in Dec 2020, its tenth consecutive month remaining in contraction territory. On the other hand, while sea cargo movements expanded slightly by 1.9% y-o-y in Dec 2020, a contraction of -0.9% was noted on a full year basis.

SINGAPORE AS A COVID-19 VACCINE DISTRIBUTION HUB

In the midst of adversity, the Singapore government has begun spearheading efforts to turn crisis into opportunity, aiming to become a COVID-19 vaccine distribution hub for the region. The government has already begun preparing the adequate cold chain management infrastructure for vaccine distribution, given the strict temperature-sensitive requirements.

In order to explore ways to improve the vaccine distribution process, the Civil Aviation Authority of Singapore and Changi Airport Group established an 18-member task force in Oct 2020 comprising airlines, logistics firms and freight forwarders. Additionally, various logistics firms have reportedly been intensifying local vaccine distribution capabilities, including Kuehne + Nagel and YCH Group.

INTENSIFYING REGIONAL TIES

Aside from becoming a COVID-19 vaccine distribution hub, Singapore has also been seeking ways to intensify its ties with other countries to reinforce its status as a regional hub. The Event Industry Resilience Roadmap was unveiled in Oct 2020 to guide the recovery process and reaffirm Singapore’s capabilities for hosting safe business events. Further, it was announced that the World Economic Forum’s annual meeting will be held in Singapore in May 2021.

As the world recovers from the pandemic, such opportunities will provide a much-needed boost to Singapore’s meetings, incentives, conferences and exhibitions (MICE) industry and hospitality-related sectors.

IMPLICATIONS TO REAL ESTATE

As Singapore continues to establish itself as an aviation hub as well as a distribution hub, logistics demand is expected to remain healthy. At the same time, the hospitality sector will also stand to benefit from the reopening of the MICE industry in the mid to long term.