Singapore Sector report

February 2021

Sectors @ a glance

Industry performance outlook

Agriculture

Automotive/ Transport

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Chemicals/Pharma

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Construction/ Const. Materials

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Consumer Durables

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Electronics/ICT

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Financial Services

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Food

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Machines/ Engineering

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Metals

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Paper

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Services

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Steel

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Textiles

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Automotive/Transport

The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.

Remains Poor Due to the economic downturn in 2020, domestic sales of passenger cars and commercial vehicles decreased, which has led to increased credit risk for the car retail segment. After a 16% contraction in 2020, automotive value added is forecast to rebound 17% in 2021. The transport segment has been impacted by lockdown measures and decreased demand for logistics, with the airline segment particularly severely hit. Transport value added is forecast to contract by 9% in 2020, with a 5.5% recovery expected in 2021. Despite the downturn, there was no material increase in payment delays and insolvencies in H2 of 2020.

Chemicals/ Pharmaceuticals

Remains Fair Chemicals and pharmaceuticals businesses generally show robust business financials, good payment records and low insolvency rates compared to other industries. However, deteriorating demand from key buyer sectors domestically and abroad had a negative impact on chemicals performance, and sector value added is expected to decrease by 5% in 2020. Pharmaceuticals demand benefits from rising global health expenses, with sector value added expected to increase by more than 25.4%.

Construction/Construction Materials

Remains Bleak Subdued economic growth already impacted private construction activity (residential and commercial) in 2019, with businesses facing fierce competition, tighter margins, slow payments and increasing insolvencies. In 2020 construction works were halted for a few months due to lockdown measures and the high infection rate among foreign construction workers.

Most building projects resumed by the end of September 2020 amid new safety protocols. Although outbreaks in migrant construction worker dormitories were quickly brought under control, the knock-on effect in terms of manpower shortages continues. Projects (including ongoing public infrastructure and civil engineering works) still face reduced operating capacity because of the implementation of safe management measures on site, supply chain disruptions and lack of migrant construction workers. This has resulted in increased costs for construction projects, which has in turn had impacts for all stakeholders along the value chain (i.e. suppliers, purchases, developers and contractors).

The downturn in the construction sector is projected to be deeper and more protracted than previously anticipated. Construction output contracted 46.2% and 28.5% year-on-year in Q3 and Q4 of 2020 respectively. Payment delays and credit insurance claim cases have increased.

Consumer Durables

Remains Poor In response to the coronavirus outbreak, the government imposed the Circuit Breaker (lockdown) since April 2020. Although retail outlets were allowed to reopen since June 19th, safety management measures are implemented where department stores and other retail shops are only allowed to operate at 50% capacity. Meanwhile, deteriorated economic conditions and restrictions on tourist visas continue to pose challenges to the sector in the near future. The number of payment defaults and business closures was relatively high in Q2 of 2020. Retail value added is expected grow by about 8% after a contraction of almost 9% in 2020.

Electronics/ICT

Remains Fair While ICT was impacted by supply chain disruptions and deteriorated demand from China in H1 of 2020, production has gradually resumed since then, as global ICT companies have restarted their operations. Spending from businesses and employees on digital goods and services has increased due to the sharp rise of remote working.

The industry will benefit from the roll-out of 5G and the growing need for data centers. In order to boost the economy and support businesses recovering from the coronavirus repercussions, the Singaporean government has announced it will spend an estimated SGD 3.5 billion on ICT procurement in the financial year (FY) 2020, an increase of 30% from FY 2019 projected spending of SGD 2.7 billion. The increased spending will help the government accelerate digitalization, as technology becomes increasingly vital in enabling citizens and workers to resume normal activities, as well as in allowing businesses to reopen safely.

Singapore’s “digital road map” was already well-established and defined before Covid-19. However, the pandemic has quickened the pace of this digital transformation, as companies look not only to improve social distancing, but also to become more productive and resilient in the long-term. In August 2020, the government launched a “Fortitude Budget,” which sets aside more than SGD 500 million (USD 365 million) to assist Singaporeans and local businesses in managing the crisis through digital transformation.

Financial Services

Remains Good The sector matters to Singapore, an Asian financial hub, as it employs more than 170,000 people and contributes 13% of GDP. Bucking the overall trend, the financial services sector remained remarkably resilient in the face of the coronavirus pandemic. During the Circuit Breaker period, 85% of workers in the financial industry have been able to work from home, thanks to strong investments in digital transformation. Impact investing, such as on healthcare, supply chain solutions and pandemic risk insurances have seen good growth. Default rates were very low on the back of government stimulus packages for many SMEs and local employees. Financial sector value added is expected to increase 2% in 2021.

Food

Remains Fair Food wholesalers and distributors continue to be impacted by the deteriorated demand from hotels, restaurants and caterers. While businesses are slowly back in operation, most of them are still not operating at full capacity. It is expected that the rebound of the food industry will remain slow over the coming months. Value added is expected to increase by about 2% in 2021.

Machines/Engineering

Remains Fair While companies in this industry are generally financially resilient, in 2020 their business performance was impacted by decreasing orders on hand and lower production due to the economic downturn. However, in Q4 of 2020, electrical and precision engineering output increased 34.9% and 7.3% respectively. Electrical machinery value added is forecast to increase by about 6% in 2021.

Metals

Remains Poor In 2020 sector performance was affected by the economic downturn, with less demand from construction as a key buyer industry. Additionally, production was hampered by lockdown measures and supply chain disruptions. As demand is expected to remain sluggish in the coming months, metal value added is expected to rebound just about 1% in 2021 after a 6% decline in 2020.

Paper

Remains Fair The paper industry is of minor relevance in Singapore, with products mainly coming from other countries like Indonesia. The impact of the coronavirus pandemic could be both positive (more people having time to read), but also negative (decreasing advertisement revenues due to the economic slump could force some magazines or newspapers to leave the market). Paper value added is forecast to grow 6% in 2021 after a 9.5% contraction in 2020.

Services

Remains Bleak Due to comprehensive lockdown measures implemented in H1 of 2020, the service sector was severely hit, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. The accommodation and food services sectors decreased 24% year-on-year in Q3 of 2020, after contracting 41.8% in Q2 and 23.7% in Q1.

Payment delays and insolvencies in the services sector have increased, but the situation stabilized somewhat in Q4 of 2020, with the gradual opening-up of the domestic economy and with the help of continued government support. However, in view of ongoing international travel restrictions, social distancing measures in place, and a second wave of the pandemic, the business environment for the sector remains challenging.

Steel

Remains Poor In 2019 the steel industry already demonstrated a subdued performance, with lower demand from key sectors like construction, as well as rising pressure on margins. In 2020 the situation further worsened, due to the economic downturn triggered by the coronavirus pandemic, with demand decreasing further. A recovery of growth in 2021 may take longer, with progress being uneven.

Textiles

Remains Poor Apparel wholesalers´ and retailers´ performance deteriorated in Q2 of 2020. This was a result of low sales during the lockdown and ongoing subdued consumer sentiment, with rising payment defaults and business failures. Local brands in Singapore have been hit hard by the pandemic, recording double-digit contractions, while many international fashion brands closed stores. Textile value added is expected to increase 8% after a whopping 35% contraction in 2020.

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