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Singapore’s economic situation remains dire, with recovery likely to be ‘slow and uneven’: MAS

Singapore’s economic situation remains dire, with recovery likely to be ‘slow and uneven’: MAS

Office workers carrying takeaway food during lunch at Raffles Place. (Photo: Gaya Chandramohan)

SINGAPORE: Even though growth rates are set to pick up in the second half of 2020, Singapore’s economic situation “remains dire” and the recovery will be a “slow and uneven” one, said the Monetary Authority of Singapore’s (MAS) managing director Ravi Menon on Thursday (Jul 16).

The recovery will be “weighed down by renewed outbreaks of infection here or abroad”, he said, with economic activities expected to remain below pre-crisis levels “for quite a while”.

Mr Menon also said that unemployment and corporate bankruptcies will likely increase in the coming months. The priority for authorities is to keep the numbers on both fronts as low as possible, he added.

READ: Singapore in technical recession after GDP shrinks 41.2% in Q2 from preceding quarter due to COVID-19

“There will be a rise in unemployment – that’s inevitable – but we are hoping to keep that as low as we can.

“(For) businesses, we hope not to see large-scale business closures. We’ve not seen that so far despite the severe plunge in GDP (gross domestic product) growth … but the tail effects of what we just went through will mean corporate bankruptcies will rise in the second half,” he said.

Mr Menon noted that some of that will be “inevitable” as part of how the economy adjusts and restructures.

“We want to make sure that the process is well-managed and orderly so from that perspective, we can expect to see some business closures and that is not entirely bad.

“But if it gets very large and disorderly, and it creates a lot of dislocations in supply chains and worker lay-offs and so on, then it’s a serious problem,” the MAS chief said at an online press conference following the release of the central bank’s annual report.


Advance estimates from the Ministry of Trade and Industry (MTI) earlier this week showed the Singapore economy falling into a technical recession – defined by economists as two straight quarters of quarter-on-quarter contraction – with steep plunges in its second-quarter GDP.

On a quarter-on-quarter seasonally adjusted annualised basis, the economy plummeted 41.2 per cent during the April to June quarter, following a 3.3 per cent decline in the first quarter.

From a year ago, Singapore’s GDP also shrank 12.6 per cent, a sharp deterioration from the first quarter’s revised 0.3 per cent drop.

READ: Singapore’s Q2 GDP expected to be slightly less grim when June reopening is taken into account: Economists 

Mr Menon said Singapore is going through its “most severe downturn since independence”. 

About 12 per cent of the economy is at “the epicentre” of the COVID-19 pandemic. This includes construction, customer-facing domestic services such as retail, as well as travel-related sectors like air transport.

Among them, travel-related sectors which account for about 4 per cent of Singapore’s GDP have “exerted the largest drag on economic growth”, he said.

These sectors that have been battered by the pandemic “will take time to recover”. Even with “strong positive sequential growth” likely in the second half of 2020, it will not be sufficient to restore the level of activity to pre-crisis levels, Mr Menon said.

The impact of the coronavirus outbreak on other parts of the economy has varied, he added, citing how the trade-related cluster that includes manufacturing and wholesale trade has taken a smaller hit.

Manufacturing has been propped up by a surge in production of pharmaceutical ingredients and biological products, while the electronics industry did better than expected, he said.

READ: The economic impact of a pandemic: ‘Without COVID-19, we would be doing okay’

It is a similar story for the modern services cluster that comprises financial, ICT and professional services.

For instance, the financial services sector has “done reasonably well”, with growth of about 5 per cent in the first half of the year. Employment in the financial services and financial technology (FinTech) sectors has also “remained firm” with no increases in retrenchments to date, said Mr Menon.

However, growth will likely moderate for these sectors in the second half.

The performance of the trade-related sector will be dampened by weak external demand and “continued small frictions” in global supply chains, while the modern services cluster will see a pullback in business activity.

For the financial services sector, growth will moderate given weaker credit demand and lower interest rate margins, but a contraction is unlikely, said the MAS chief.

This means that there “could potentially be some net job loss but this is not likely to be large”, he added.

“For the year as a whole, MAS expects the financial services sector to still be a small net creator of jobs, albeit much lower than in previous years.”

READ: Singapore's GDP expected to shrink between 4% and 7% as 2020 growth forecast cut again on COVID-19 impact

Mr Menon reiterated the official forecast for the Singapore economy to shrink between 4 and 7 per cent for 2020. If borne out, this would be the country's worst-ever recession since independence.

“The economic situation remains dire. We are not at the beginning of the end, but rather at the end of the beginning.

“We will enter 2021 with higher levels of debt, in both the corporate and household sectors which will act as a further drag on growth and could become a source of vulnerability,” he added, noting that the central bank’s priorities will be to ensure monetary and financial stability.


Mr Menon also gave an update on the local property market, which he described as “stable” due to the macro-prudential measures in place and new temporary relief measures that were doled out in response to the pandemic.

He added that the stabilisation of the property market has “substantially reduced” its vulnerability to the COVID-19 shock.

READ: MAS net profit falls 45% on lower investment returns

"If property prices had been rising rapidly as we entered the COVID-19 crisis, we could have seen a sharp and painful correction.

“As it has turned out, the adjustment of the property market has been modest. Property prices have moderated in an orderly manner in recent months,” said the MAS chief.

“At this point, there is no need to adjust the existing cooling measures."

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Source: CNA/sk(nc)


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