As the world steps tentatively into 2021, TODAY takes a look at what could lie ahead in four areas: The economy, jobs, property and Covid-19 developments. In the second of this series, TODAY Senior Journalist Janice Lim looks at what’s in store for the battered economy in the next 12 months.

• After clocking its worst slump since independence, Singapore’s economy is set to rebound in 2021 but economists said the recovery will be a slow and uneven one
• Economists warned that entering the third phase of the country's reopening and the availability of vaccines may not be game-changers
• Some segments of the services sector and the construction sector will lead the recovery 
• With borders unlikely to open anytime soon as the Covid-19 pandemic rages out of control overseas, travel-related sectors will hardly see much lift
• The manufacturing sector, which had been chugging along steadily in 2020, will see its pace of growth slow down this year.

SINGAPORE — The Covid-19 pandemic has wrought unprecedented damage in 2020 on Singapore’s economy as it clocked its worst slump since independence.

But 2021 looks set to be a year of recovery.

After a record economic contraction of 13.4 per cent in the second quarter of 2020 due to a two-month partial lockdown, which brought most economic activity to a standstill, data from subsequent quarters shows that the economy is starting its slow climb out of the abyss.

On Monday (Jan 4), advance estimates from the Ministry of Trade and Industry showed that Singapore’s gross domestic product (GDP) shrank 3.8 per cent in the fourth quarter of 2020 compared to the same period the previous year — a significant improvement from the downturn during the second quarter.

While the economy contracted 5.8 per cent in 2020 overall — its worst full-year recession since independence — MTI expects growth to come in between 4 and 6 per cent this year, as the economy rebounds from a deep recession.

Yet economists whom TODAY spoke to cautioned that the recovery will be gradual and uneven, with little relief in sight for travel-related sectors.

And despite Singapore entering the third phase of its economic reopening after the partial lockdown as well as the availability of vaccines, these may not be game-changers, the economists warned.

They added that huge uncertainty remains as the Covid-19 pandemic continues ravaging economies around the world, and the effectiveness of vaccination still largely unknown.

UNEVEN RECOVERY

Having taken a big hit last year due to strict safe distancing requirements, some segments of the services sector — as well as the construction sector — will lead the recovery, economists said.

With Singapore into its third phase of reopening since Dec 28 last year, restaurants, malls and construction sites may be able to operate at higher capacities as domestic restrictions gradually ease.

However, the economists who were interviewed agreed that the manufacturing sector, which had been chugging along steadily in 2020, will see its pace of growth slow down this year.

With the opening of borders unlikely to happen anytime soon as the pandemic seems to have gotten worse in other countries, the aviation and tourism-related sectors will still suffer in the year ahead.

Efforts to encourage domestic tourism in Singapore will not be enough to cover the absence of foreign tourists, reiterated DBS bank's senior economist Irvin Seah.

Even as Singapore opens up more in Phase Three, Barclays Bank's economist Brian Tan said that it will not have a significant impact on the country's growth for 2021.

“Is it really opening anything new we were not doing before? Were there really big things we cannot do? Not really. Most things have already resumed,” he said.

A bigger factor that would affect Singapore’s recovery in 2021 would be its vaccination programme as it may lift people’s confidence in going out more, said Mr Tan.

However, Dr Chua Hak Bin, economist at Maybank Kim Eng, pointed out that vaccinations would probably have a bigger impact in countries such as Indonesia, India, Philippines and Malaysia which are still struggling to contain their locally-transmitted cases.

A major factor inhibiting the country's recovery is how its neighbours and other developed markets roll out the vaccines, given Singapore's high reliance on global trade and investment flows, said Dr Chua.

“Border controls cannot be relaxed until the other side can contain the situation,” he said.

Still, economists noted that bringing back international mobility is out of the control of Singapore’s Government.

Ms Selena Ling, head of treasury research and strategy at OCBC bank, said that vaccination is just the first step on a very long journey.

“How many people will take the vaccine, is the vaccine going to be effective… Are governments confident enough to open all the borders? If governments open borders, are people going to travel again?” she said.

WILL GLOBAL OUTLOOK CHANGE UNDER NEW US PRESIDENT? 

Before the pandemic took over, much of the world’s attention was on the trade war between the United States and China which started in mid-2018, when outgoing US President Donald Trump hiked tariffs on certain goods produced in China.

While economists generally agree that relations between the world’s two biggest economies will be far more stable, it is unlikely that President-elect Joe Biden would roll back any of the tariffs that have been imposed while Mr Trump was President, at least not in 2021.

Economists say that there is large bipartisan support, across both the Democratic and Republican parties, for the US to continue taking a tough stance against China.

Dr Chua from Maybank Kim Eng said that Mr Biden, who will be inaugurated later this month, would be focused more on domestic issues. Of paramount importance right now would be to contain the US’ coronavirus situation.

Mr Seah, however, is hopeful that discussions on rolling back the tariffs may emerge sometime during Mr Biden’s four-year term.

Economists agree that the way foreign relations is conducted may go back to what was once the norm and bring about a calmer US-China relationship.

“There would be more certainty with regard to US policy towards China going forward. One of the most agonising and frustrating things about the Trump administration was that a lot of policies are highly volatile and unpredictable,” said Mr Seah.

With more orthodox figures taking over the reins in the world’s superpower, such as former US Federal Reserve head Janet Yellen who is the incoming Treasury Secretary, there is some hope that the US-China relationship will stabilise to some extent, said Ms Ling.

“But are we going to return to the days of pre-Trump? I don’t think that’s going to be the case,” she said.

What would that mean for Southeast Asia and Singapore?

Mr Seah said the new US administration would be reengaging the region and rebuilding its relationship with its allies and partners in this part of the world. 

Given China’s growing importance in the region, he said that US presence in Asia would bring about a more balanced economic development in the region.

For Singapore, which is dependent on a stable global environment, an improvement in US-China relations would be beneficial to the country, said Ms Ling.

But the need for companies to diversify would still have to continue even with improved US-China trade ties, reiterated Mr Seah. 

BUDGET 2021

Even though Singapore’s economy is on the road to recovery, economists said it is still in need of more stimulus.

“There is a need to sustain economic recovery. We are still at the early stage of the recovery process. The last thing we need to avoid is to have a cliff effect in terms of fiscal support,” said Mr Seah.

Nevertheless, with several government stimulus packages rolled out last year amounting close to S$100 billion, economists said that Budget 2021 would pale in comparison as Singapore is no longer in firefighting mode this year.

While they agree that Budget 2021 will still be expansionary, some projected that it would be about 4 per cent of Singapore’s gross domestic output (GDP), which amounts to about S$19 billion.

In comparison, Budget 2020 and the subsequent budgets rolled out last year as the Covid-19 crisis worsened made up about 20 per cent of Singapore’s GDP.

Instead of saving jobs, Mr Seah said Budget 2021 would focus on creating more jobs.

This means that wage and training subsidies would still be needed to ensure companies have enough resources to capitalise on opportunities and increase capabilities.

While the Government will still focus on sectors that have been the hardest hit by the pandemic, such as aviation and tourism, Mr Tan said that the help provided in 2021 will be more targeted at companies that will remain viable in the long run.

Ms Ling said that the Jobs Support Scheme, under which the Government subsidises the wages of workers, will likely be rolled back even more as it is very costly.

While cash assistance may be tapered, there may be incentives to help firms with training, she added.

Overall, economists recognise that it will be a tough year ahead given that the new term of Government will be starting on a deficit.

Mr Seah said that Singapore can “ill-afford another circuit breaker” that restricted activities and movement in April and May 2020.

“We have to be ultra vigilant in terms of preventing a second wave of infections particularly in the community,” he said.