Clarice Tan is eagerly waiting for safe distancing measures to be lifted so she can patronise retail joints freely. “It’s been awhile since I went shopping. I have saved quite a bit while staying home, so I’m now ready to spend,” the 27-year-old civil servant told The Edge Singapore. With Singapore facing its worst-ever recession, more spending from the likes of Clarice might just help slow the deterioration in the ailing economy.
On Aug 11, the Ministry of Trade and Industry (MTI) estimated that Singapore’s economy might shrink between 5 and 7% this year, down from a previous forecast of between –4% and –7%. This projection “essentially means the growth generated over the past two to three years will be negated”, says Trade and Industry Minister Chan Chun Sing.
Between 1Q2019 and 1Q2020, it was a barely noticeable dip of 0.3%; but for 2Q2019 to 2Q2020, the economy contracted 13.2% (see chart). Compared to the preceding quarter on a seasonally adjusted annualised basis, the contraction was an eye-popping 42.9%, as the two-month-long “circuit breaker” extracted its economic cost. The government estimates that the April-May lockdown shaved at least 2.2% off Singapore’s annual real GDP, which is some $11.3 billion when translated into dollar terms.
The weakness in Singapore’s economy spreads across all the sectors. Specifically, consumer-facing industries such as retail are said to have felt the heat of the measures, dropping 13.4% y-o-y in 2Q2020, as operations were restricted and even halted amid the tighter measures that kicked in at mid-April. The accommodation and food services sector, for one, was down a substantial 41.4% y-o-y, sharper than the 23.8% decline registered in March. This followed a drop in visitor arrivals, after the border control measures had been imposed to curb the spread of Covid-19 infections.
Meanwhile, 2019’s growth-driver of construction was down 59.3% y-o-y in 2Q2020 following stalled operations. This came as migrant workers from the sector had been issued stay-home notices and quarantine orders to stem the massive coronavirus outbreaks.
On an external front, sectors such as manufacturing, wholesale trade and transport and storage are feeling the pinching of disrupted global supply chains and slowdowns in the markets of key trading partners. The sector recorded an 8.2% y-o-y dip in activity in 2Q2020. This came from “significant uncertainties” in the global economy, such as the risk of a second wave of coronavirus infections, which may once again put a dent on global economic activity.
Quick recovery?
When the pandemic first broke out, many businesses were harbouring hopes of a quick recovery and a return to the familiarity of the old normal. With the number of Covid-19 cases around the world still growing unabated, Chan cautions this may not be the case. In fact, the “painful truth” is that Singapore cannot afford to wait for the coronavirus to abate as the changes it brings will hinder a reversal to a pre-Covid-19 economy, he says.
Economists, such as Citi’s Kit Wei Zheng and Ang Kai Wei, agree. They estimate a recovery back to end-2019 levels might happen only in 1H2022. Similarly, DBS’ Irvin Seah is looking at five straight quarters of negative year-on-year growth till 1Q2021. The subsequent growth will only be due to 2020’s low base effect, he explains. The uncertainty of this unprecedented global health and economic crisis has pushed some economists to cut their forecasts. United Overseas Bank (UOB) economist Barnabas Gan, for one, is looking at a 5% drop, while Seah anticipates a 6.5% decline. Kit and Ang are even more pessimistic than the government; they expect a contraction of 7.5% — below the lower bound of MTI’s forecast of between –5 and –7%.
Besides, a slow recovery, when it comes, will be uneven and challenging, says Chan. As such, a reversal of Singapore’s year-on-year growth in 2H2020 is unlikely. Above the economic fallout caused directly by the pandemic, mounting tensions between the US and China is a huge dampener on recovery as well. “There continues to be significant uncertainty over how the Covid-19 situation will evolve in the coming quarters, and correspondingly, the trajectory of the economic recovery in both the global and domestic economies,” says MTI.
This resonates with Maybank Kim Eng (MKE) economists Chua Hak Bing and Lee Ju Ye, who say: “Recovery in 2H2020 will be sluggish and choppy, dampened by the slow reopening, border controls, strict social distance rules and foreign worker shortages.”
Given the bleak and likely prolonged prognosis, eyes will be on further support from the government. According to a joint study by MTI and the Ministry of Finance, Singapore’s unprecedented four budgets thus far this year, totalling some $92.9 billion, have collectively prevented real GDP from losing about 5.5% in 2020. Economists are now looking forward to yet another fiscal boost from Deputy Prime Minister Heng Swee Keat.
The upcoming measures should be more targeted instead of giving blanket support such as the Jobs Support Scheme (JSS), where all companies here receive wage subsidies for every Singaporean they hire, economists argue.
“Existing fiscal support schemes may be extended, but will likely be scaled down and more targeted at the worst-hit sectors,” according to MKE’s Chua and Lee. What this means is better-performing sectors such as financial services can be excluded from receiving help, while others such as the languishing tourism industry can continue to receive aid. “Extending an indefinite lifeline is costly, and depletes fiscal reserves and underutilised manpower resources,” they note.
Of the $92.9 billion already announced, there is a $13 billion portion set aside as contingency funds which the government can tap without having to dip into the reserves again, according to economists such as OCBC’s Selena Ling.
Besides an extension of the JSS, UOB’s Gan believes the government will cut employers’ Central Provident Fund (CPF) contributions — just like the 10% cut levied in 1998 at the nadir of the Asian Financial Crisis. Employers now pay 17% of their employees’ wages into their CPF accounts. The rate goes down to between 7.5% and 13% for employees 55 years old and above. Gan also anticipates guidelines for employers on wage freezes and wage cuts — all without having another supplementary budget. Heng is expected to provide clarity on this “quite soon”, Manpower Minister Josephine Teo said at a virtual press conference on Aug 11.
In the meantime, businesses, employees and job-seekers all need to brace for a tough and uncertain climate — possibly for quite some time. “This is not the Asian Financial Crisis or the Global Financial Crisis where, if we hunker down, things will improve in a few months,” says Chan.
There is a need for companies to chart a new course in the way they do business, and adapt accordingly. And they need to do so now, to avoid the risk of ending up in a worse shape than they are in. “We do not have all the answers yet, and the ground realities are fast evolving, often without precedence. But we know that staying still is not an option,” says Chan.
