SINGAPORE (Feb 6): Although the easing of US-China trade tensions was a signal of “green shoots” in a troubled global economy, the novel coronavirus (2019-nCOV) is now the latest threat to an economic recovery.
As at Feb 6, the total number of confirmed virus cases in Singapore stands at 28. Seven of these cases involved local transmissions, with the infected patients claiming they hadnot travelled to China recently. However, the Ministry of Health has maintained that there is no evidence of widespread community transmission in Singapore just yet.
With the Budget slated to be announced on Feb 18, the Ministry of Trade and Industry (MTI) has noted that the Wuhan virus outbreak is expected to affect Singapore's economy this year, and the government will implement measures to support businesses.
In 2003, the SARS relief package had set the government back by some $230 million to provide immediate relief to the tourism sector, as well as to help provide a stimulus to the broader economy.
“Measures taken back then include property tax rebates, temporary bridging loans and lower foreign worker levies. Unlike the SARS period, we believe there is less urgent need for measures in the transport sector as yet with no evidence of community spread so far,” says Credit Suisse’s equity research team.
Credit Suisse also identifies certain “lessons” that could be learnt from the SARS epidemic back in 2003 - namely the declines in tourism arrivals, hotel occupancies and retail sales.
Similarly, OCBC’s treasury research team notes although the virus situation has not become as severe as SARS, it would not rule out some tourism-related assistance initiatives at the upcoming Budget.
“[These] may go beyond what had already been planned to help SMEs tackle the challenge of a growth slowdown and the need for capability upgrading,” says OCBC in a recent report.
While analysts remain bullish on the Singapore government’s ability to deliver initiatives that can help the affected areas of the economy, they have taken to paring down their GDP forecasts to factor in the potential downside it could have on the Singapore economy.
Maybank Kim Eng has revised its 2020 GDP growth forecast to 1.1% from the previous 1.8% due primarily to the possible effects of the virus outbreak and border control measures on hospitality, travel and retail sectors.
“Disruptions to China’s supply chain will also have knock-on effects on manufacturing. China’s economy is much larger than during the 2003 SARS crisis ($14 trillion vs. $1.5 trillion in 2003) and the impact from a China slowdown will be magnified,” says Maybank analyst Chua Hak Bin. “China accounts for 19% of visitor arrivals and 17% of exports,” he adds.
OCBC has widened its 1-2% GDP growth forecast to 0-2% to “accommodate any potential downside risks from the coronavirus.
“Using the SARS experience in 2003 as a reference, we estimate that Singapore’s GDP growth could potentially be shaved off by up to 0.5-1% point from the baseline if the current epidemic lasts more than 3-6 months and constrains business and consumer confidence, restricts travel (air, land and sea included), and impacts productivity (with workers under voluntary/involuntary quarantine), albeit this is not our base case scenario and excludes any policy support that could be forthcoming,” say OCBC analysts.
However, all is not lost as Maybank’s Chua says that while a 1% contraction can be expected in 1QFY2020, growth is set to “rebound” in 2QFY2020.
“Manufacturing, retail trade, transport, hospitality, and business services will likely contract, mirroring the SARS episode,” says Chua. “Our base case is for growth to rebound in 2Q, as the virus outbreak is contained and governments relax border controls.”
“We are not expecting a technical recession and do not expect the MAS to ease the slight appreciation stance at the April meeting,” adds Chua.
DBS economist Irvin Seah agrees that MAS is unlikely to be swayed on its appreciation stance.
“The MAS monetary policy decision in April 2020 is unlikely to be swayed for now, but the incoming economic data prints will continue to be important,” says Seah. “Many central banks are now in pause mode as they want to keep their remaining powder dry when the need arises. As it stands now, the market has already done a lot of the easing for MAS.”
“Related uncertainties on the duration and severity of the outbreak could dent both business and economic confidence in the near-term,” say OCBC analysts. “Hence, the potential cost of such an epidemic to the global and regional economies cannot be discounted at this juncture.”
