The recent Covid-19 resurgence may have baked in the prospects of an uneven and gradual economic recovery through the year led by the trade-driven manufacturing sector.
That suggests the pace of growth will depend on the health of external demand for goods and services produced in Singapore - a critical node for global trade.
The fear of surprise outbreaks of new Covid-19 variants will ensure that some level of restrictions will persist on travel and domestic mobility through the year, even if the current heightened alert measures are softened in the coming weeks.
Those curbs will keep sectors that are dependent on domestic consumption weak, leaving the heavy-lifting in the recovery process to parts of the economy that are powered by external demand for yet another year.
External final demand accounts for almost 70 per cent of Singapore's gross domestic product (GDP). Three-quarters of that 70 per cent are derived from demand generated through global value chain effects that represent the goods used as intermediate inputs to produce other intermediate or final goods.
With that in mind, policymakers deemed most of the industries within the manufacturing sector - the most dependent on foreign demand - as essential services that were allowed to operate with fewer restrictions, even during last year's circuit breaker.
The bet paid off and manufacturing led the recovery from the Covid-induced recession, growing amid the worst year in the country's economic history at a breathtaking pace of 7.3 per cent.
That was a strong rebound from the 1.5 per cent contraction in Covid-free 2019 and was mainly driven by increased demand for electronics - the largest segment within the sector - as work-from-home boosted sales of computers and mobile phones.
The sector also includes high-value clusters such as precision engineering, chemicals and biomedical manufacturing.
Manufacturing kept its promise in the first quarter of this year as well, clocking in growth of 10.7 per cent on a yearly basis, helping to push the pace of overall GDP expansion to 1.3 per cent. Its impact on GDP can be gauged by comparing it with another outward-oriented sector that expanded in the first quarter at an even faster pace.
Accommodation, which covers the hotel industry, grew 19 per cent, helped by domestic tourism and travel bubbles used mainly by citizens and permanent residents.
But its contribution to GDP growth came at just 0.1 per cent in the first quarter, far lower than manufacturing's 2.2 per cent.
Information and communications technology grew 6.4 per cent. The sector did well as stay-home mandates and a surge in online purchases boosted Internet use.
Finance and insurance racked up growth of 4.7 per cent as bank lending started to recover after a sharp contraction last year.
Wholesale trade grew 3.5 per cent in the first quarter, as demand for commodities such as crude oil rose along with the reopening of economies worldwide.
Retail trade expanded at 1.4 per cent as phase two relaxations kicked in late last year. However, the sector is likely to be among the worst hit from the May 16 to June 13 heightened alert measures.
The latest wave of Covid-19 here and abroad will certainly not trigger a double-dip recession, but tighter safety measures across Asia may have damaged business sentiment enough to slow down the pace of recovery.
There is hope that similar outbreaks in the future will become less threatening as vaccination rates pick up globally.
Hence, manufacturing is poised to continue growing at a healthy pace backed by rising demand for electronics, artificial intelligence, automation and 5G network implementations. However, the focus will shift to some bigger threats from the third quarter onwards.
Manufacturing in general and electronics in particular are highly cyclical, meaning that a boom can quickly turn into a bust.
If the ongoing global semiconductor shortage remains unresolved, it may bring forward a down-cycle in electronics.
Big global players like Samsung have already flagged that they may cut their production if semiconductor supply remains constrained.
Lower production will hit companies that produce various components that go into finished electronic products.
The impact of lower sales volumes on profit margins can be compensated by raising product prices. But higher prices of electronics may complicate another emerging risk - inflation.
A round of interest rate hikes in response to fears of inflation in major economies like the United States can have a spillover impact on global demand for goods and services from exporting nations like Singapore.
So far these are only potential risks and may not come to pass. However, calls from the ground are growing and have begun to sound a bit more desperate.
Mr Kurt Wee, president of the Association of Small and Medium Enterprises, told The Straits Times the impact on both domestic and external demand has already started to show after a recent spate of lockdowns across the Asia-Pacific.
"There was an expectation that countries were starting to be able to manage living with Covid-19. So there was hope that in the second half of 2021, we should start to see a gradual recovery in SMEs across various sectors," he said.
"While that scenario for the second half is not completely out of the picture, the emergence of new variants in Singapore and other parts of the world has dampened hopes for the second half."
Mr Wee noted that while smaller businesses can pivot fast to serve sectors that are growing, most of them usually lack the financial resources needed to make the move.
In response, the Government announced an $800 million package of support measures on Friday (May 28), including enhancements to the Jobs Support Scheme for affected sectors, rental relief for small and medium-sized enterprises (SMEs) and non-profit organisations in commercial properties, and a Covid-19 Recovery Grant.
The measures are on top of the support extended to some domestic sectors like food and beverage and parts of the manufacturing sector such as marine engineering.
Last year, government support helped prevent a much bigger crisis by saving many jobs and businesses that could have been lost.
However, the Budget this year has cut back on the size and scope of the support measures.
Mr Wee believes additional government help will cover the uncertainty over how new outbreaks affect businesses here and abroad.
The Government understands how clouded the outlook has become.
The fact that the Ministry of Trade and Industry (MTI) earlier this week maintained its growth forecast range for this year at 4 per cent to 6 per cent despite the surprisingly strong performance in the first quarter says it all.
A recent Singapore Business Federation (SBF) poll on the impact of phase two (heightened alert) found that 31 per cent of manufacturing firms expect their revenue to decline by more than 25 per cent. This was better than the 46 per cent across all industry sectors.
SBF told The Straits Times that while it expects the recovery of the manufacturing sector to continue, the worsened pandemic situation in some regions may impact demand and disrupt supply chains.
The heightened alert measures and further tightening of borders are also expected to impact demand and companies' ability to bring in the workers they need for recovery and growth, it said.
The recent Covid-19 resurgence may have baked in the prospects of an uneven and gradual economic recovery through the year led by the trade-driven manufacturing sector.
That suggests the pace of growth will depend on the health of external demand for goods and services produced in Singapore - a critical node for global trade.
The fear of surprise outbreaks of new Covid-19 variants will ensure that some level of restrictions will persist on travel and domestic mobility through the year, even if the current heightened alert measures are softened in the coming weeks.
Those curbs will keep sectors that are dependent on domestic consumption weak, leaving the heavy-lifting in the recovery process to parts of the economy that are powered by external demand for yet another year.
External final demand accounts for almost 70 per cent of Singapore's gross domestic product (GDP). Three-quarters of that 70 per cent are derived from demand generated through global value chain effects that represent the goods used as intermediate inputs to produce other intermediate or final goods.
With that in mind, policymakers deemed most of the industries within the manufacturing sector - the most dependent on foreign demand - as essential services that were allowed to operate with fewer restrictions, even during last year's circuit breaker.
The bet paid off and manufacturing led the recovery from the Covid-induced recession, growing amid the worst year in the country's economic history at a breathtaking pace of 7.3 per cent.
That was a strong rebound from the 1.5 per cent contraction in Covid-free 2019 and was mainly driven by increased demand for electronics - the largest segment within the sector - as work-from-home boosted sales of computers and mobile phones.
The sector also includes high-value clusters such as precision engineering, chemicals and biomedical manufacturing.
Manufacturing kept its promise in the first quarter of this year as well, clocking in growth of 10.7 per cent on a yearly basis, helping to push the pace of overall GDP expansion to 1.3 per cent. Its impact on GDP can be gauged by comparing it with another outward-oriented sector that expanded in the first quarter at an even faster pace.
Accommodation, which covers the hotel industry, grew 19 per cent, helped by domestic tourism and travel bubbles used mainly by citizens and permanent residents.
But its contribution to GDP growth came at just 0.1 per cent in the first quarter, far lower than manufacturing's 2.2 per cent.
Information and communications technology grew 6.4 per cent. The sector did well as stay-home mandates and a surge in online purchases boosted Internet use.
Finance and insurance racked up growth of 4.7 per cent as bank lending started to recover after a sharp contraction last year.
Wholesale trade grew 3.5 per cent in the first quarter, as demand for commodities such as crude oil rose along with the reopening of economies worldwide.
Retail trade expanded at 1.4 per cent as phase two relaxations kicked in late last year. However, the sector is likely to be among the worst hit from the May 16 to June 13 heightened alert measures.
The latest wave of Covid-19 here and abroad will certainly not trigger a double-dip recession, but tighter safety measures across Asia may have damaged business sentiment enough to slow down the pace of recovery.
There is hope that similar outbreaks in the future will become less threatening as vaccination rates pick up globally.
Hence, manufacturing is poised to continue growing at a healthy pace backed by rising demand for electronics, artificial intelligence, automation and 5G network implementations. However, the focus will shift to some bigger threats from the third quarter onwards.
Manufacturing in general and electronics in particular are highly cyclical, meaning that a boom can quickly turn into a bust.
If the ongoing global semiconductor shortage remains unresolved, it may bring forward a down-cycle in electronics.
Big global players like Samsung have already flagged that they may cut their production if semiconductor supply remains constrained.
Lower production will hit companies that produce various components that go into finished electronic products.
The impact of lower sales volumes on profit margins can be compensated by raising product prices. But higher prices of electronics may complicate another emerging risk - inflation.
A round of interest rate hikes in response to fears of inflation in major economies like the United States can have a spillover impact on global demand for goods and services from exporting nations like Singapore.
So far these are only potential risks and may not come to pass. However, calls from the ground are growing and have begun to sound a bit more desperate.
Mr Kurt Wee, president of the Association of Small and Medium Enterprises, told The Straits Times the impact on both domestic and external demand has already started to show after a recent spate of lockdowns across the Asia-Pacific.
"There was an expectation that countries were starting to be able to manage living with Covid-19. So there was hope that in the second half of 2021, we should start to see a gradual recovery in SMEs across various sectors," he said.
"While that scenario for the second half is not completely out of the picture, the emergence of new variants in Singapore and other parts of the world has dampened hopes for the second half."
Mr Wee noted that while smaller businesses can pivot fast to serve sectors that are growing, most of them usually lack the financial resources needed to make the move.
In response, the Government announced an $800 million package of support measures on Friday (May 28), including enhancements to the Jobs Support Scheme for affected sectors, rental relief for small and medium-sized enterprises (SMEs) and non-profit organisations in commercial properties, and a Covid-19 Recovery Grant.
The measures are on top of the support extended to some domestic sectors like food and beverage and parts of the manufacturing sector such as marine engineering.
Last year, government support helped prevent a much bigger crisis by saving many jobs and businesses that could have been lost.
However, the Budget this year has cut back on the size and scope of the support measures.
Mr Wee believes additional government help will cover the uncertainty over how new outbreaks affect businesses here and abroad.
The Government understands how clouded the outlook has become.
The fact that the Ministry of Trade and Industry (MTI) earlier this week maintained its growth forecast range for this year at 4 per cent to 6 per cent despite the surprisingly strong performance in the first quarter says it all.
A recent Singapore Business Federation (SBF) poll on the impact of phase two (heightened alert) found that 31 per cent of manufacturing firms expect their revenue to decline by more than 25 per cent. This was better than the 46 per cent across all industry sectors.
SBF told The Straits Times that while it expects the recovery of the manufacturing sector to continue, the worsened pandemic situation in some regions may impact demand and disrupt supply chains.
The heightened alert measures and further tightening of borders are also expected to impact demand and companies' ability to bring in the workers they need for recovery and growth, it said.