SINGAPORE (Apr 28): Singapore’s economy staged a grim contraction of 2.2% year-on-year in the first quarter of the year, the Monetary Authority of Singapore (MAS) published in its April 2020 Macroeconomic Review on Tuesday.
In contrast, Singapore’s worst recession thus far was during the Asian Financial Crisis in 1998, when the economy contracted 2.2%. Meanwhile, full-year economic growth came in at 0.1% during the Global Financial Crisis in 2009 and shrank 1.1% during the dot.com bust in 2001.
On a seasonally adjusted month-on-month basis, the city-state’s economy shrank by 10.6% - a sharp retraction from the 0.6% growth recorded in 4Q19. The data is also a deviation from the ‘tepid recovery’ anticipated by economists and market watchers.
Sectors of weakness
The travel-related sector had the biggest contribution to the decline, following a significant dip in tourist arrivals. According to data from the Singapore Tourism Board (STB), visitor arrivals plunged 51% year-on-year in February and have grounded to a halt since Mar 23 following a complete ban on short-term arrivals.
Consequently, passenger movements at Changi Airport fell 71% in March. Meanwhile, the hotel occupancy rate tumbled to 51% in February, down from an average of 87% in the preceding six months (Aug 2019 – Jan 2020).
Other consumer-facing sectors have also been badly hit. For instance, the reduced footfall after the implementation of social distancing measures in public spaces saw an 11% contraction in February’s retail sales volume. This comes from a drop in sales of discretionary items such as department store goods, wearing apparel & footwear and watches & jewelry.
The food and beverage sector too recorded a decline of 16% in February with sales volumes at restaurants and food caterers plunging some 30%, while those at cafes, food courts and other eateries fell by a milder 3.6%.
Interestingly, the snaking queues at supermarkets saw the sector growing 14% - making it one of the few growth sectors.
Meanwhile, construction activity dipped 4.3%, reversing the expansion in the preceding quarter and defying the Building and Construction Authority’s (BCA) estimations of a strong growth.
Aside from this, significant declines came from the sluggish services sector. This was led by lower demand for business services such as business & management consultancy services, as corporates mothballed consultancy studies, presumably to reduce expenditure.
The finance and insurance sector followed suit as the banking sector was weighed down by weakening regional economic activity.
However, the performance of the trade-related sector was mixed, as the republic’s industrial production staged an unexpected expansion of 6.6% in 1Q20, due to an exceptionally strong 68% surge in biomedical output. The rest of the manufacturing sector was more subdued. For instance, the linchpin electronics cluster contracted 10.5% as the global electronics cycle derailed semiconductor output.
Singapore’s economic decline follows the unprecedented blow caused by the novel coronavirus (Covid-19) pandemic which has till end April, over 2.9 million cases and at least 200,000 deaths globally.
To curb the spread, governments in countries experiencing outbreaks, like Singapore, have implemented public health measures restricting human movement and the consumption of non-essential social activities.
This has inadvertently caused immediate severe and widespread economic disruption globally, resulting in the International Monetary Fund’s global growth forecast of -3% for 2020, in what is panning out to be the worst global recession since the Great Depression between 1929 and 1939.
See : Covid-19 to cause the world's worst recession since the 1929 Great Depression: IMF
In this vein, the MAS is looking at a full-year growth between -4% and -1%, to account for the domestic circuit breaker restrictions as well as the impact of the global slowdown.
“The Singapore economy will enter into a recession this year,” the central bank stresses in its report. However, it stresses that significant uncertainty remains over the severity of the downturn and its eventual recovery.
“Overall, the near-term outlook for the Singapore economy is fraught with uncertainty. There is poor understanding of the evolution of the Covid-19 situation globally, which in turn implies that the depth and duration of the downturn in Singapore, as well as the strength of the eventual recovery remain unknown,” it states.
“The materialisation of downside risks, that largely depend on the course taken by the pandemic and the efficacy of policy responses around the world, could tip the growth outcome in Singapore below the forecast range”.
These economic downturns imply a reduction in labour, the central bank cautions. Already as at end 2019, the vacancies-to-unemployed persons ratio stood below 1%, meaning there already were less jobs available than unemployed people.
The resident unemployment level also stood at 3.2% in 4Q19 – above its 10-year historical average of 3.0%. In this time, resident wage growth eased to 0.5%, bringing the average increase for 2019 to 2.6%, down from 2018’s 3.5%.
Now, as firms respond to the temporary decline in economic activity, MAS expects employees’ to be affected by reduced working hours or being put on voluntary no-pay leave. Others may also experience reduced wages.
However, the central bank estimates the government’s fiscal support measures such as the Jobs Support Scheme (JSS), a blanket wage subsidy of up to $3,450 for all Singaporean workers, will help forestall a large spike in unemployment in the short-term, while preventing spare capcity from emerging in the long run.
"[The measures] should also reduce the possibility of more lasting damage to the economy which may arise through destruction of firm-specific organisational capital as well as hysterisis effects that cause a rise in structural unemployment," it adds.
