• Asean manufacturing PMI rose to 40.8 in December from 50 in November, highest since Aug 20, led by Singapore, Indonesia, Thailand and Vietnam
• Singapore’s GDP growth declined by -3.8% yoy in 4Q20 (-5.6% in 3Q20), weighed down by construction and most services producing industries
• World Bank projects East Asia and Pacific to rebound by 7.4% in 2021 from 0.9% in 2020.

Rollout of vaccines and easing restrictions to support Singapore’s recovery

In December, the Asean manufacturing Purchasing Managers’ Index (PMI) rose for the third consecutive month from 50 in November to 50.8 in December, making this its first reading above the 50 level since February 2020. This was also its highest level since August 2018. IHS Markit guided that the increase in the PMI reading was driven by the largest increase in new orders since August 2018 as well as better business confidence which reached an 11-month high. Among Asean-5 countries, Singapore (55.0), Indonesia (51.3) and Thailand (50.8) registered PMIs above 50 while the PMIs of the Philippines (49.2) and Malaysia (49.1) were below 50 during the month. We believe that the sustained improvement in the region’s manufacturing sector has been supported by the sustained recovery in China’s economy and the optimism among producers, partly due to the rollout of vaccines will continue. However, even with the rise in the region’s manufacturing output, we believe that the uneven recovery among countries will likely continue especially with the re-imposition of containment measures in Philippines and Myanmar following the rise in cases. Furthermore, until vaccines are disbursed widely, uncertainties around the pandemic will continue to be a downside risk for the region.

Separately in Singapore, real GDP growth in 4Q20 contracted for the fourth consecutive quarter by 3.8% yoy compared to -5.6% in 3Q20 based on advanced estimates by Ministry of Trade and Industry (MTI). Despite the decline, growth has steadily improved from its low of -13.4% in 2Q20. Therefore, for the full year, Singapore’s economy contracted by 5.8% (+0.7% in 2019), the first annual decline since 2001. During the quarter, growth was mainly dragged by construction, wholesale and all services producing industries except for information & communications, finance and insurance and professional services. As Singapore has managed to contain the outbreak alongside the continued gradual reopening of the economy and has begun its rollout of vaccine, we believe that growth recovery will continue in the coming quarters. Furthermore, additional fiscal support anticipated in the upcoming 2021 Budget in February will also provide a boost to the economy.

Meanwhile, in the World Bank’s (WB) latest Global Economic Prospects Report, it highlighted growth in East Asia and Pacific (EAP) will rebound strongly by 7.4% yoy in 2021 from +0.9% in 2020 led by the robust growth in China’s economy. WB noted that its forecast hinges on the distribution of effective vaccines which will underpin the improvement in global and regional confidence, consumption and trade. However, regional activity is anticipated to remain below its pre-pandemic trend by late 2021 amid the lasting negative impact of the pandemic. WB also guided that key risks for the region’s outlook include high debt levels, the possibility of further outbreaks and delayed deployment of the vaccines.

Source: Affin Hwang Research - 8 Jan 2021