SINGAPORE (June 22): While the easing of circuit breaker measures has seen a pent-up demand in macro indicators such as retail sales, industrial production, and other industries, CIMB Private Banking economist Song Seng Wun says the loosening of restrictions is also sparking a second wave of infections in some countries.
“These stats are a reminder that the COVID-19 virus is far from being defeated,” says Song.
Apart from Covid-19 worries, Song adds that there are the added risk of geo-politics that could affect the recovery of the economy, including US-China relations, and EU-China relations.
The way DBS chief economist Taimur Baig and economist Nathan Chow see it, the pent-up demand following the easing of the lockdowns across the globe may have led to a few market-relieving real economic data points, it would be “imprudent” to get carried away by this narrative, as there is no sight of a Covid-19 vaccine on the horizon.
In Singapore, headline inflation is expected to dip deeper into negative territory in May with a forecast of -1.4% y-o-y, say Baig and Chow.
"This is even lower than -0.7% in the previous month as further deceleration in growth and low oil prices add on to the disinflationary pressure," they add. "Moreover, the stimulus packages against the impact of the Covid-19 pandemic announced by the government to lower cost of living probably will exert more pressure on inflation".
Baig and Chow foresee that industrial output for May is likely to ease to a more sustainable pace of 6.9% y-o-y, down from 13% previously.
A pullback in pharmaceutical production is also expected due to routine plant shutdown, which was reflected in the non-oil domestic export (NODX) performance for the same month, they say.
Following a 4.5% contraction in NODX in May after an average of 13.2% expansion in the preceding two months, UOB analyst Alvin Liew estimates that the manufacturing sector will contract by 7.1% m-o-m in May from the 3.8% growth in April.
“That will translate into a slower growth of 6.2% y-o-y (from 13.0% y-o-y in April),” he says.
See: Singapore's NODX drops after three consecutive months of growth
