SINGAPORE (May 26): Singapore’s economy is looking at its worst recession since independence, with gross domestic product (GDP) forecast to contract between 7% and 4% this year.
The official forecast range was lowered by the Ministry of Trade and Industry (MTI) on Tuesday from its previously estimated contraction of between 1% and 4%, as the Covid-19 health-turned-economic crisis continues to disrupt economic activity.
“Notwithstanding the downgrade, there continues to be a significant degree of uncertainty over the length and severity of the Covid-19 outbreak, as well as the trajectory of the economic recovery in both the global and Singapore economies,” MTI cautioned.
The last time the republic posted a full-year economic contraction was during the dot.com bubble in the late 1990s, when the economy fell by 1.1%.
Singapore’s worst recession to-date was during the 1997 Asian Financial Crisis (AFC), when the economy staged a 2.2% decline.
Amid prospects of lower growth, MTI revised Singapore’s 1Q20 decline to a narrower 0.7%, from its previous flash estimate of a 2.2% decline announced in April. This comes on the back of the better-than-expected performance of biomedical manufacturing as well as an uptake in the finance and insurance industry, MTI added.
See: Singapore economy records worst contraction in 1Q20 since 2008 Global Financial Crisis and may shrink more if Covid-19 outbreak continues : MAS
Even so, it says this growth is unlikely to extend into 2Q20, given the start of the circuit breaker measures on April 7 which restricted the operations of non-essential services, in a bid to curb the spread of Covid-19 infections.
These measures “have further dampened domestic economic activity, along with domestic consumption,” it added.
Specifically, consumer-facing industries such as retail and food services are said to have felt the heat of the measures, as operations were restricted and even halted during the tighter measures that kicked off in mid-April.
Meanwhile, previous growth-drivers such as construction and marine and offshore engineering “have been severely affected by manpower shortages,” and have been forced to remain shut. This is as migrant workers from the sectors have been issued stay home notices and quarantine orders to stem the massive outbreaks occurring, particularly amongst these employees.
Presently, during the circuit breaker, only 5% of the construction workforce is active, with another 5% will be allowed to resume work once the measures are lifted. This translates to a total active construction workforce of around 40,000 from Jun 2.
See: Parts of construction sector to resume operations; don't expect 'big party' after June 1, says Gan
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 markets of key trading partners.
This comes 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.
“In particular, if infections start to rise and strict measures such as lockdowns and movement restrictions are re-imposed, the downturn in these economies could be more severe and prolonged than expected,” MTI stressed.
In line with this, Enterprise Singapore (ESG) – a trade agency under MTI – has cut its 2020 forecasts for Non-Oil Domestic Exports (NODX) and total merchandise trade.
NODX for the year is expected to come in between -4% and -1%, while total trade forecasts have dipped to between -12% and -9%. This is down from predictions of a 0% to 2% growth range for both metrics.
For now, MTI says the republic can take refuge from “pockets of resilience” in its biomedical manufacturing cluster, which has seen a surge in demand from pharmaceutical and biological products.
Aside from this, the services sector, particularly information and communications, is projected to grow from a heightened demand of IT and digital solutions as workers and students rely on technology for video conferencing and distance-based work.
Looking at the data, Selena Ling, head of treasury research and strategy at OCBC Bank says the downward revision of the official 2020 growth forecast for Singapore, was expected.
However, she warns of a significant deterioration in 2Q20 growth momentum due to the circuit breaker measures as well as a weak recovery trajectory in 2H20, depending on the Covid-19 recovery process in Singapore and abroad.
“Market focus will be on the fourth Budget [on Tuesday] where fiscal policy will do the heavy lifting, with another tap on the past reserves already receiving the President’s in-principle approval. The policy priorities are to mitigate the expected softening in the domestic labour market,” she said.
Dubbed Fortitude Budget, this fourth bullet is said to focus on job support schemes as Singapore prepares to reopen its economy through a three-phase approach starting Jun 2.
See: Fortitude Budget to give more support to jobs as economy edges open, and Singapore's economy plunges in early sign of pain in Asia
