SINGAPORE (Mar 27): Deputy Prime Minister and Finance Minister Heng Swee Keat says the government's $48.4 billion secondary package "cannot prevent an economic recession".
This is "as the external health and economic situation will evolve beyond our control," he added as he unveiled the package in parliament on March 26.
Officially dubbed the Resilience Budget, this supplementary budget brings the city state’s total coronavirus relief measures to an astounding $55 billion, or 11% of its GDP.
A key focus is supporting Singapore’s rattled economy by injecting much-needed aid into the ailing sectors of aviation, tourism and hospitality.
It is also aimed at reaching out to employers with an increased co-payment to employees’ salaries as well as households through handouts.
While this requires the government to dip into past reserves and run a budget deficit of $1.7 billion in FY2019 (0.3% of GDP) and $39.2 billion for FY2020 (7.9% of GDP), Heng believes it is a necessary move to protect Singapore’s languishing economy.
Economists have taken to calling this a “Bazooka Budget” that is appropriate in helping industries crumbling from the weight of the pandemic. “This robust fiscal response surpasses the handouts announced in the first Budget. It is beyond expectation,” says DBS’ senior economist Irvin Seah.
CIMB economist Song Seng Wun agrees, saying that relief will have a dual-pronged effect.
In the short-term, it cushions the impact of the slowdown on local employees. Meanwhile, in the longer run, the government’s support for job creation and the digitalisation of businesses will be critical in boosting Singapore’s economic recovery and eventual growth.
With flash estimates from the Trade and Industry Ministry (MTI) showing a 2.2% dip in GDP for the quarter – the worst contraction since 1Q2009 during the Global Financial Crisis – economists, like DPM Heng, say the budget, may not be effective in preventing a recession.
“The fiscal support will reduce job losses and the extent of unemployment, but will not lift growth or corporate revenue,” observes Maybank Kim Eng’s senior economist Chua Hak Bin.
Drawing reference to the unemployment levels of 3.3% during the peak of the 1997/1998 Asian Financial Crisis and 2008/2009 Global Financial Crisis, Chua expects Singapore’s resident unemployment rate to climb to around 3.5% - from the current 2.3% - with expected job losses of around 40,000 to 50,000 for the year.
As the number of Covid-19 cases increases daily both in Singapore and abroad, Chua says the lifeline may only be enough for the next six to nine months. After such time, if Singapore and the world are in a recession, he says another fiscal package may be necessary.
DBS’ Seah also points out that there could be more downside risks to the global economy as the pandemic remains fluid, causing financial stress and political risks.
The duo's comments come just after the MTI downgraded its official full-year growth forecast for Singapore to between -4% and -1%. The move is just a month after the -0.5% to 1.5% target range predicted by the ministry.
This follows a fall in Singapore’s consumer price index (CPI) to -0.5% in February 2020 - for the first time the index has fallen into negative terrain since January 2009.
For now, economists are looking at an “all hands on deck” complementary monetary easing by the Monetary Authority of Singapore (MAS) on Mar 30.
“MAS’ key focus is price stability – further weakening of the Singapore Dollar Nominal Effective Exchange Rate (SGDNEER) is thus needed to ensure that core inflation returns to its historical average over the medium term,” says Bank of America Meryll Lynch’s ASEAN economist Faiz Nagutha.
To this end, he expects a double-easing where the policy slope is lowered between 0.5% to 0% and the band is re-adjusted.
Even so, whether the economy picks up from the fiscal and monetary policies is largely dependant on how the pandemic pans out in the coming months, economists say.
