SINGAPORE’s recovery from the coronavirus recession is likely to be “gradual and uneven,” with firms and households restraining spending and a recent bounceback in industrial output likely to taper off in coming months, the central bank said.

While some economies worldwide, including Singapore’s, are showing signs of healing in the third quarter, “the near-term rebound is expected to fade to an incomplete recovery,” the Monetary Authority of Singapore (MAS) said in its biannual Macroeconomic Review, released Wednesday. The city-state’s labor market is expected to “only expand gradually” next year.

“Some pockets of the economy may not recover to pre-pandemic levels even by the end of next year,” the MAS said, noting that Singapore’s travel-related and contact-intensive services are likely to remain depressed. “Firms and households will continue to be restrained by income loss and increased uncertainty, and will therefore hold back on investment and discretionary spending.”

The MAS still projects the local economy to contract 5% to 7% this year, reaffirming the Ministry of Trade & Industry’s forecast.

Singapore has unleashed about S$100 billion ($73.5 billion) in fiscal stimulus to combat the impact of the pandemic, including short-term aid like wage subsidies and rent relief as well as longer-term efforts to digitize business and retrain retrenched workers. About half of the stimulus is set to be funded from past reserves, an unusual move for the fiscally conservative city-state.

Officials are confident Singapore has already suffered the worst of the economic blow, but anticipate more retrenchments, bankruptcies and non-performing loans through early next year. They’ve signaled more stimulus will be needed as the economy emerges from the worst downturn since the country’s independence more than a half-century ago.

Globally, the recovery will be “partial and protracted,” weighing on trade-reliant Singapore more than any recession before, the central bank said. Accommodative monetary and fiscal policy will bolster economies this year and monetary policy should remain lenient in coming quarters, while countries’ fiscal policies are likely to turn contractionary next year, the MAS said.

The pace of recovery worldwide “is not expected to be sufficient to close the large negative output gaps opened up by the COVID-19 recession, even by the end of 2021,” the MAS said. “The course of the pandemic is highly uncertain, but it seems likely that activity will continue to be hampered by recurrent localized outbreaks of the virus, and the imposition of associated movement restrictions, for some time.”

Significant downside risks to the global outlook remain, such as waves of new infections, US-China tensions and mistimed policy tightening, the MAS said. Earlier-than-anticipated availability and deployment of a vaccine is an upside risk.

Locally, the MAS sees some near-term recovery in construction and other sectors reliant on foreign workers, who are gradually returning to work sites. Information, communications and technology sectors, as will as financial services, were also cited as bright spots, boosted by recent announcements from ByteDance Ltd. and Tencent Holdings Ltd. to make Singapore their headquarters in Asia.

The central bank maintained its projections for inflation, seeing headline price growth at -0.5% to 0.5% next year while core inflation should be between 0% and 1%. Both indicators are still seen in the range of -0.5% to 0% for 2020, with the pandemic-induced demand slowdown and oil-price shock providing strong disinflationary pressure, the report said.

The MAS has allowed fiscal spending to lead the virus response, opting to keep monetary policy on hold at its Oct. 14 decision. The slope of the currency band — which the authority uses to control monetary policy, rather than interest rates — was left at 0%, and the band’s width and center were kept unchanged, implying the MAS wouldn’t seek any currency appreciation.

The central bank said at the time that its accommodative policy stance “will remain appropriate for some time” as it sees the economy recovering next year — albeit slowly — with a lessening risk of disinflation.

October’s hold decision came after the MAS eased policy at its prior meeting in March, early in the pandemic. — Bloomberg