Commentary: New Singapore Government measures must be more targeted than previous three Budgets
While new fiscal stimulus is needed to save jobs and businesses in Singapore, focus must also be on building longer-term resilience, says OCBC economist Selena Ling.
SINGAPORE: With the end of the "circuit breaker" coming up in less than two weeks, it is timely that Singapore policymakers are adopting a phased approach to re-opening the Singapore economy.
Under Phase 1, businesses that are allowed to resume from Jun 2 include manufacturing and production facilities, as well as services including finance and insurance, wholesale trade and logistics and storage.
Pre-schools and schools will re-open in stages and with special arrangements.
If the situation remains under control for about four to six weeks, then we will move to Phase 2 which will allow more businesses and facilities to re-open, including retail outlets, gyms and tuition centres.
Phase 2 could last several months and Phase 3 will be at a yet to be determined date but the official tone suggests even this will not be a return to “business as normal” but a “new normal”.
BETTER SAFE THAN SORRY
Judging by the experience of other countries that had re-opened earlier, the risk of a second wave of infections cannot be fully discounted.
The current picture is still mixed – Hong Kong, New Zealand and Australia have so far reported zero to very low new cases after re-openings, whereas France, Spain and South Korea have seen a fresh pick-up in new infections after restriction measures were eased.
Meanwhile, on the COVID-19 vaccine development front, progress remains very tentative at this juncture.
Since Singapore is adopting a gradual, rather than an instantaneous and full, reopening of all economic engines, this approach affords companies some leeway on how they want to scale up their operations after being in stasis for the past two months.
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It will clearly not be exactly “business as usual” for some time.
As businesses may still be relatively cautious about the demand recovery and the ongoing supply chain disruptions, they may not be in a big rush to restart 100 per cent of their operations either.
The expected pain points may be trying to resolve existing manpower constraints since the lockdowns and travel restrictions may still be in place for many regional economies, including Malaysia whose Movement Control Order ends only on Jun 9.
Companies may also need to overcome global supply chain disruptions as the inability to source imports of raw materials and components may impede one’s ability to resume business operations.
At the same time, some businesses will need to figure out how to implement and maintain necessary social distancing and hygiene factors, such as lesser staff and face masks, which also implies higher business costs and lesser clientele on-site.
RECOVERY SOMEWHAT IN SIGHT
The fact that 75 per cent of economic activities will restart does mean that we should not write off the second half of 2020 yet.
This resumption of business activities suggest that while the second-quarter growth momentum is likely to be worse than the previous three months and may still register a double-digit contraction, nevertheless, it may now be slightly less severe than the 20 per cent year-on-year decline that was initially expected.
Nevertheless, since Phase 1 is likely to stretch from four to six weeks, and Phase 2 may last a couple of months, this may mean that the recovery growth momentum may be muted until the fourth quarter of this year.
This could mean a sharp drop-off in the first half of 2020, but a more gradual sloped recovery from the second half onwards, putting the shape of the recovery somewhere between a V- and U-shaped trajectories.
This still puts the 2020 full-year growth output contraction in the region close to our bank’s -6 per cent forecast.
That said, the better-than-expected March industrial production figures imply that the flash first quarter 2020 GDP growth estimate is likely to be revised upwards from the initial -2.2 per cent to around -1.5 per cent.
LESSONS FROM CHINA
We can draw some reference from China, which was the first-in-first-out country of the COVID-19 pandemic.
While China has seen a V-shaped bounce in April’s industrial activity due to an orderly resumption of factories, the demand recovery, especially for private consumption, is more tepid.
This is because the average Chinese consumer, who is conservative and prudent, is currently favouring consumption of essential goods and services and deferring discretionary purchases given the weak global growth outlook and softening labour market outlook.
This suggests that while individual countries can implement their own reopening strategy, at the end of the day, domestic consumer confidence is still tied to global demand conditions, which is in turn dependent on the global developments of the COVID-19 pandemic and also the global recovery.
Within manufacturing, the biomedical cluster, especially pharmaceuticals, have already been faring well in the current COVID-19 environment where medical and personal protection equipment supplies, COVID-19 testing and vaccine-related development are in hot demand.
For the services sectors, financial, logistics, information and communications technology - especially cyber-security & e-commerce-related industries due to the drive for digitalisation and online platforms - will also likely continue to be in demand for the rest of the year.
The food and beverage (F&B) and retail industries will see a delayed reopening only from Phase 2, which will likely lead to calls for more wage support in terms of the Job Support Scheme extension to stay afloat in the coming months.
This brings me to the last point about what’s next in terms of fiscal policy stimulus since we know that Deputy Prime Minister and Finance Minister Heng Swee Keat will announce a further round of assistance measures on May 26.
LONGER TERM MEASURES NEEDED TOO
After the Unity, Resilience and Solidarity Budgets were launched in quick order between February to April, amounting to some S$63.7 billion or 12 per cent of GDP, there may be some speculation if another sizeable package is on the cards again.
The earlier substantial fiscal stimuli were mainly targeted at throwing out urgent lifelines to sinking boats - namely in terms of mitigating the liquidity crunch faced by companies and households and the potential retrenchments that could follow in a sharp economic downturn, especially during the circuit breaker.
However, since the Singapore economy is now potentially at a turning point with the lifting of some circuit breaker restrictions in phases, this could warrant a different perspective of preparing for the recovery phase with more targeted and curated help for specific industries to stage a comeback, while not forgetting more medium-term strategies to shore up our economic resilience in anticipation for the next crisis.
More assistance may be needed to get viable businesses and workers back on their feet again after the two months of “cold storage”, especially for the worst-affected sectors, including tourism and hospitality-related industries such as the F&B and the retail sectors.
It is plausible that to help businesses and individuals adapt and build resilience in the continuing fight against the COVID-19 pandemic, some extension of current assistance schemes such as the Jobs Support Scheme and liquidity and rental support for a longer period of time may be needed.
As highlighted earlier, this is especially for industries such as F&B that will see deferred reopening and below capacity utilisation under new social distancing norms.
In addition, more help may be needed to help some hospitality-related businesses reorientate their business model to cater more to local demand as overseas tourism may take a longer time to recover.
However, beyond helping the businesses and households with their immediate survival needs, rationally, we would also need to refocus on medium-term strategies that further diversify our import sources.
Singapore’s vision to grow enough food to meet 30 per cent of our nutritional needs by 2030 may be accelerated for instance, for example beyond the S$30 million 30x30 Express grant to ramp up local production of eggs, leafy vegetables and fish over the next six to 24 months.
This is aimed at helping reduce Singapore’s vulnerability to global supply chain disruptions, especially in food and medical supplies.
In addition, some post-COVID-19 thought is needed to strengthen our economic ecosystem to be better prepared for the next crisis, as well as ensure companies and industries accelerate with their digital transformation journey and maybe re-examine our reliance on foreign manpower.
Much has been said about the “new normal” post-COVID-19, given potential shifts towards more on-shoring of essential production to mitigate supply chain disruptions, shifting consumption patterns to more online and less discretionary purchases as well as focusing more on health, hygiene, and buying local.
Even tourism patterns may evolve with more domestic or regional travel preferred over long-haul travel when travel restrictions are lifted.
Notwithstanding a deep kitty in the form of substantial reserves, Singapore will still need to grapple with balancing the needs of the day and saving for another rainy day.
At this juncture, there is probably no urgency to pile on the fiscal stimulus to overtake current global frontrunners such as Germany and Japan whose cumulative fiscal stimulus to-date to combat the COVID-19 pandemic already exceeds 20 per cent of GDP.
It may be more prudent to leave some fiscal room for the 2021 Budget.
Selena Ling is Head of Treasury Research and Strategy at OCBC Bank.