Singapore's economy during COVID-19: A quick look at the key sectors

• As expected, most sectors faced significant disruptions and contributed less to real gross domestic product (GDP) in 2020 than in 2019.

• The manufacturing sector largely survived the recession, instead increasing its contribution from 20.8% (Q1 2019) to 24.0% (Q3 2020), primarily driven by biomedical engineering and precision engineering. In particular, biomedical engineering boomed in 1H2020 due to increased demand and exports of active pharmaceutical ingredients (APIs) for medical drugs, and biological products required by the pharmaceutical sector for COVID-19. Meanwhile, precision engineering was driven by strong global demand for (and investment into) semiconductor manufacturing equipment following the roll-out of 5G, increasing need for cloud services, and data centres.

• A critical challenge we can expect to hit the manufacturing sector would be a shortage in labour supply, as the government reduced the quota for foreign workers in the manufacturing sector yesterday. The quota will be reduced from 20% to 15% in January 2023 to reduce dependency upon foreign labour and reduce Singaporeans’ unemployment (4.7% in Q3 2020). Unless labour can be adequately reskilled to match labour demand, the industry could become less globally competitive in 2023.

• Another challenge could be the uncertain demand for exports of any non-medical/electronic goods, as it depends on protectionism in upcoming years. Other concerns include sluggish growth in aerospace engineering as border controls dampen air travel, and a potential demand plateau for biomedical engineering following vaccine released in Q4 2020.

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• Comparatively, the construction sector was particularly hard hit by COVID-19 as it contracted 97.1% between Q1 and Q2 2020.

• Both public and private sector construction companies revised their contracts due to postponed project timelines and delayed shipments of materials (owing to increased protectionism). The key economic driver behind this would be shortage of labour supply (outbreak of COVID-19 in foreign worker dormitories) and reduced demand during circuit breaker in Q2.

• This sector can expect fewer long run challenges as it is largely domestically focused, and public residential projects will resume to support demand. Nonetheless, the key dependency would be the labour market, as labour supply is expected to fall with reduced foreign workers. Additionally labour costs are expected to rise as the government reduces wage subsidies and foreign worker levies. This would increase unit labour costs in an environment of low labour supply.

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• Accommodation and food services fell from 2.1% GDP (2019) to 1.4% (Q2 2020) at the peak of the circuit-breaker period. Both sectors were affected by reduced sales in hawker centres and restaurants (due to occupancy limits and safe distancing), as well as the sharp reduction in travel (owing to border closures).

• The government funding via means like the $100 hawker centre vouchers, GST Vouchers, and wage subsidies under the Job Support Scheme is expected to increase demand for the services and reduce the burden upon underemployed individuals.

• However, potential challenging areas to look out for could include:

1. Sustaining livelihoods once wage support ends for the industry in June 2021, particularly in businesses which have been unable to fully resume business (e.g. nightclubs, pubs).

2. Business levels for hawker centres who cannot adapt to digitalisation of food services via delivery apps.

3. How the state will rebuild their budget after the 6 support schemes released last year (e.g. via GST hikes, increased petroleum prices announced in the Budget 2021, etc).