SINGAPORE: The Singapore economy contracted by 2.2 per cent year-on-year in the first quarter, as the COVID-19 outbreak and global measures to prevent its spread threw a wrench in the construction and services industries, according to flash estimates released on Thursday (Mar 26).
This is the worst contraction since the global financial crisis in 2009, and compares with the 1 per cent expansion logged in the same period last year and in the preceding quarter.
On a seasonally adjusted annualised basis, Singapore's gross domestic product shrank by 10.6 per cent quarter-on-quarter, a sharp pullback from the 0.6 per cent growth in the previous quarter, according to advance estimates released by the Ministry of Trade and Industry (MTI).
"COVID-19 is like an economic tsunami hitting Singapore shores," said Ms Selena Ling, head of research and strategy at OCBC, adding that second-quarth growth could shrink 7 per cent.
"This is the worst GDP year-on-year contraction since 1Q09 and the largest quarter-on-quarter slippage since 3Q10. This is also the first time we see a contraction in all three key sectors, namely manufacturing, services, and construction, since 3Q98 during the Asian financial crisis," she added.
The grim data prompted MTI to further downgrade Singapore's GDP growth forecast for 2020 to between -4 per cent and -1 per cent.
It had already downgraded last month its full-year GDP forecast to -0.5 per cent to 1.5 per cent on account of the COVID-19 outbreak.
READ: Singapore's factory activity plunges 22.3% in February from previous month amid COVID-19 outbreak
"Since then, the COVID-19 outbreak has escalated, and led to a significant deterioration in the economic situation both externally and domestically," said MTI.
"The wider forecast range is to account for heightened uncertainties in the global economy, given the unprecedented nature of the COVID-19 outbreak, including the public health measures taken in many countries to contain the outbreak," it said in a press release.
A survey by MAS released earlier in March showed that analysts had lowered their 2020 GDP growth forecast to 0.6 per cent from the 1.5 per cent growth indicated in the previous poll, with respondents more pessimistic across all key macroeconomic indicators.
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ADDITIONAL GOVERNMENT SUPPORT NEEDED
Analysts said on Thursday that the latest figures indicate that a recession in inevitable. This recession could also hurt more than the one during the Asian financial crisis, they said, as they slashed their forecasts.
UOB slashed its 2020 GDP forecast to -2.5 per cent, from its previous estimate of a 0.5 per cent expansion, saying it expects the economy to contract in each of the four quarters before seeing a recovery next year.
OCBC slashed its forecast to -3 per cent from -1 to 0 per cent previously, while DBS cut its forecast to -2.8 per cent from -0.5 per cent previously.
During the 1998 Asian financial crisis, Singapore’s GDP growth contracted 2.2 per cent.
"The latest set of figures has confirmed our fear that a recession is inevitable," said DBS senior economist Irvin Seah.
"In fact, this could well be the worst recession ever on record for Singapore ... Amid such a dire economic outlook, strong policy responses will be required to arrest the fall," he added.
Deputy Prime Minister and Minister for Finance Heng Swee Keat on Thursday announced a "landmark" S$48 billion Resilience Budget support package to help workers, businesses and households tide through what he called a "black swan" event.
This is on top of a S$4 billion Stabilisation and Support Package announced during the Budget in February.
Prime Minister Lee Hsien Loong has said that Singapore’s economy is taking a “big hit”, but has assured companies that the Government will keep them "afloat through the storm".
Singapore has 631 COVID-19 cases as of Wednesday.
With the outbreak becoming more widespread, authorities have progressively tightened border controls significantly to reduce the importation of COVID-19 cases, affecting the tourism and air transport sectors.
Authorities on Tuesday announced more measures to contain the outbreak, including limiting gatherings outside of work and school to a maximum of 10 people and shutting all entertainment venues, including clubs and cinemas.
This will further weigh on domestic consumption, and have an adverse impact on consumer-facing sectors such as retail trade and food services, noted MTI.
Singapore's measures, as well as those taken by governments around the world to curb the spread of the virus, including lockdowns and travel restrictions, has led to supply chain disruptions and a sharp decline in tourist arrivals in Singapore.
Those measures, in turn, have had a ripple effect on the construction and services industries.
READ: Singapore tourism to take 'significant hit' in 2020 due to coronavirus, up to 30% fewer visitors expected
The construction sector took the largest hit in the first quarter, the estimates by MTI showed, shrinking 4.3 per cent year-on-year. This is a reversal from the 4.3 per cent growth in the previous quarter.
On a quarter-on-quarter seasonally adjusted annualised basis, the sector contracted 22.9 per cent, compared with a 5.3 per cent expansion in the preceding quarter.
Lockdowns and travel restrictions implemented by other countries disrupted the supply chain and delayed the return of foreign workers, adversely affecting some construction projects, said MTI.
In the services sector, air transport, accommodation, food services and retail have been hit hard on the back of a sharp decline in tourist arrivals and a fall in domestic consumption.
On Monday, Singapore Airlines said it would slash 96 per cent of its capacity and implement cost-cutting measures. With the absence of tourists, hotels have rolled out staycation packages to attract local crowds.
Reflecting the impact, the services producing industries shrank by 3.1 per cent from the same period last year in the first quarter, reversing the 1.5 per cent growth in the fourth quarter of 2019.
On a seasonally adjusted basis, the services producing industries declined 15.9 per cent, reversing from a 2.2 per cent growth in the previous quarter.
The Monetary Authority of Singapore said on Monday that it would release its monetary policy statement earlier on Mar 30, as Singapore's core inflation fell 0.1 per cent in February, slipping into deflation for the first time in more than a decade.
MTI said that with COVID-19 spreading "rapidly" beyond China to many other countries, including the US, UK, France and Germany, many governments have implemented stringent measures to curb the spread, including closing their borders.
Those countries are likely to see a sharp slowdown in their economies, said the ministry.
"As the global COVID-19 situation is still evolving rapidly, there remains a significant degree of uncertainty over the severity and duration of the global outbreak, and the trajectory of the global economic recovery once the outbreak has been contained," said MTI.
"The balance of risks, however, is tilted to the downside. Downside risks include a more protracted-than-expected global outbreak; more severe and prolonged disruptions to global supply chains; and the possibility of financial shocks triggered by the economic impact of COVID-19," it added.