SINGAPORE (June 15): Singapore is looking at an 11.8% y-o-y decline in its 2Q20 economic growth, according to findings from the latest Monetary Authority of Singapore (MAS) survey of forecasters released on Monday.
For the full year, the 23 private-sector economists and analysts polled are looking at a 5.8% contraction in the city-state’s Gross Domestic Product (GDP). This is down from the 0.6% growth forecast in the previous survey published in March.
The tremors of the Covid-19 health-turned-economic crisis topped the list of downside risks identified by the survey respondents. This is as the pandemic has been a major disruption to global supply chains, business operations and employment.
Further escalation of trade tensions, particularly between the US and China, continued to be a concern for respondents, with 38.9% citing this risk, compared with 35.3% in the previous survey.
Others noted softer labour market conditions as a potential downside risk to Singapore’s economic growth.
Already, the city-state logged a historic drop in total employment by 25,600 in March, following a slowdown in travel and consumption.
See: Total employment makes historic drop in 1Q20 as ratio of job vacancies to unemployed persons falls
Market watchers predict unemployment will increase to 3.6% by the end of the year, up from the 2.4% predicted in the March survey. A sharp increase is expected particularly from 2Q20, to reflect the effects of the “circuit breaker” measures that restricted the operations of non-essential services.
Specifically, the market watchers polled expect accommodation and food services to take the biggest hit, with a 26.0% y-o-y contraction. This is a significant deviation from the -1.6% forecast in the March survey
Wholesale and retail trade (-12.8%), construction (-11.4%) and private consumption (-5.2%) are other sectors expected to take a hit this year.
In contrast, the finance and insurance (+3.1%) and manufacturing (+2.2%) are expected to log expansions, as they are deemed essential services.
Touching on the forecast for manufacturing, OCBC Bank chief economist Selena Ling believes it could be taking the cue from the better-than-expected industrial production data for March and April. In particular, the silver lining comes from pharmaceuticals due to the global Covid-19 induced shortages, she added.
Like Ling, UOB economist Barnabas Gan expects pharmaceutical production and exports to continue expanding, and “be a boon” for Singapore’s overall manufacturing and trade.
Other upside factors the MAS’ respondents are looking at an easing of global financial conditions, a weaker Singapore Dollar Nominated Effective Exchange Rate (S$NEER) and a possible global economic recovery to ease the extent of Singapore’s economic slowdown.
The exchange rate for the year is expected to hover at $1.400 per USD, against $1.373 forecast previously.
The extensive fiscal stimulus doled out across Singapore’s four budgets for the year – Unity, Solidarity, Resilience and Fortitude – is another aspect that is expected to cushion the extent of a deterioration in GDP.
In this vein, the survey respondents are looking at a recovery in the city-state’s economy in 2021, to 4.8% next year.
Meanwhile, headline inflation – the measure of total inflation in the economy – is forecast to come in at 0.7% in 2021, an improvement from the -0.5% expected this year. Core inflation – which excludes private road transport and accommodation costs – is projected to come in at 0.6% in 2021, from -0.5% in 2020.
Gan views this growth in the inflation metrics positively, amid a drag on domestic prices from deteriorating consumer demand and low oil prices.
