Singapore entered the COVID-19 pandemic with sizable policy space and robust economic policy frameworks. These have enabled the authorities to mount a coordinated, comprehensive, and sizable policy response, with fiscal policy acting as a first line of defense. As a result, worse outcomes were prevented and real GDP, which contracted by 5.4 percent in 2020, registered 1.3 percent year-on-year growth in 2021Q1, led by a strong manufacturing sector performance. Labor market conditions were supported by the wide-ranging policy initiatives, and unemployment declined to 2.9 percent in April 2021 from its peak of 3.5 percent in September 2020. Inflation, which had turned negative in 2020, registered 2.1 percent year-on-year in April. Policy support helped banks maintain strong liquidity and capital buffers. The current account surplus was resilient through the crisis and registered 17.6 percent of GDP in 2020. 

Singapore’s economic recovery is expected to remain on track in 2021.

Activity is expected to accelerate in 2021H2 as vaccines become more widely available, bringing annual growth to 6 percent in 2021. The recovery is expected to be led by manufacturing and modern services, as hard-hit sectors such as aviation and tourism related industries improve more gradually. Inflation is expected to be contained given remaining slack in the labor market. With the recovery in domestic demand, the current account surplus is expected to decline to 15.5 percent of GDP in 2021. Over the medium term, growth should converge to 2.5 percent with the current account surplus declining and MAS core inflation stabilizing at 2 percent. The outlook is subject to unusually high uncertainty, with balanced risks stemming mostly in the near term from the unknown trajectory of the pandemic globally and locally, as well as the path for vaccines. Additional risks include volatile global financial conditions, threats to globalization and trade, and the uncertain impact of the pandemic on the corporate sector.