SINGAPORE: Singapore has narrowed its economic forecast for 2020 to a contraction between 5 and 7 per cent, the Ministry of Trade and Industry (MTI) said on Tuesday (Aug 11), as the economy posted its worst quarterly performance in the second quarter amid the COVID-19 pandemic.
The earlier projection made in May was for the economy to shrink between 4 and 7 per cent. Since then, the outlook for the Singapore economy has “weakened slightly”, MTI said in its report.
“Notwithstanding the narrowing of the forecast range, there continues to be significant uncertainty over how the COVID-19 situation will evolve in the coming quarters, and correspondingly, the trajectory of the economic recovery in both the global and domestic economies,” it added.
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MTI said many of Singapore’s key final demand markets are seeing worse-than-projected economic disruptions in the second quarter.
They are also expected to experience a more gradual pace of recovery in the second half of the year, given the threat of localised outbreaks and the continued need for restriction measures.
The global economy is also seeing significant uncertainties, MTI said, citing how a major resurgence of COVID-19 infections could lead to a significant tightening of public health measures or a re-imposition of nationwide lockdowns across the major advanced and emerging economies.
“This could result in an even sharper and more protracted period of economic slowdown in these economies,” it said.
The global economic downturn could also increase financial system stresses, triggering "negative feedback loops and potentially intensify the global recession".
Meanwhile, there are risks arising from geopolitical tensions and anti-globalisation sentiments.
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This subdued external economic environment will continue to pose a drag on several of Singapore’s outward-oriented sectors such as transportation and storage, and wholesale trade.
The reopening of international borders is also expected to take place more gradually given the protracted COVID-19 situation worldwide, which will likely weigh on the outlook of sectors that are reliant on tourism and air travel.
The resumption of activity for sectors that are reliant on foreign workers who reside in dormitories has also been slower than expected, MTI said. This is due to the longer time taken to clear the workers for work, as well as the challenges faced by firms in meeting the safe management measures required.
This means that the construction, as well as the marine and offshore engineering sectors, may be in for a “deeper and more protracted” downturn.
“A sharper slowdown in these sectors is also expected to have negative spillover effects on firms in supporting industries, such as professional services firms providing architectural and engineering services for construction projects,” MTI added.
However, there are still several areas of strength in the Singapore economy.
For instance, MTI said the outlook for the electronics and precision engineering clusters has improved with stronger-than-expected demand for semiconductors and semiconductor equipment likely to be sustained in the second half of 2020.
The biomedical manufacturing cluster is also expected to continue to grow, supported by the production of pharmaceutical and biological products.
Similarly, the finance and insurance, and information and communications sectors are projected to expand this year, MTI said.
The former will be supported in part by the strong demand for digital payment processing services, while the latter will benefit from firms’ continued demand for IT and digital solutions.
RECORD SLUMP IN Q2
For the second quarter, the Singapore economy contracted by 13.2 per cent on a year-on-year basis, worse than the 12.6 per cent decline seen in the Government’s advance estimate and a sharp deterioration from the 0.3 per cent contraction in the previous quarter.
On a quarter-on-quarter seasonally adjusted annualised basis, the economy shrank 42.9 per cent, also larger than the 41.2 per cent contraction in the initial estimates and the 3.1 per cent fall in the first quarter.
READ: Singapore in technical recession after GDP shrinks 41.2% in Q2 from preceding quarter due to COVID-19
But MTI said such annualised quarterly figures could be “exaggerated” in times of extreme volatility and unusual circumstances such as the “circuit breaker” that was in place from April to May.
“Under steady economic conditions, the (quarter-on-quarter seasonally adjusted annualised) number is typically the one that we refer to because the quarter-on-quarter rate is quite steady and you can compound it quite easily over three quarters,” said MTI's economics division director Yong Yik Wei.
“But in such circumstances where you have a very big drop in GDP in the second quarter, which is largely because of the circuit breaker, it's not quite appropriate to compound that over the next three quarters as if it's going to happen for the next three quarters.”
It cited the non-annualised quarterly figure in its press release, which showed a contraction of 13.1 per cent from the previous three months.
Nevertheless, both quarter-on-quarter figures indicated a slump for the second consecutive quarter, indicating that Singapore is in a technical recession.
MTI said the fall in second-quarter GDP was due to the “circuit breaker” measures implemented from Apr 7 to Jun 1 in a bid to curb the spread of COVID-19 in Singapore, as well as weak external demand amidst a global economic downturn caused by the pandemic.
This marks the country’s “worst quarterly performance on record”, said Trade and Industry Minister Chan Chun Sing at a press conference after the announcement of the GDP figures.
He added that the forecast for the year also means that “the growth generated over the past two to three years will be negated”.
LABOUR MARKET TO REMAIN SOFT
Given the uncertainties ahead, the expectation is for the labour market to remain soft for the upcoming quarters, said Mr Kenny Tan, divisional director of manpower planning and policy division at the Ministry of Manpower (MOM).
“Businesses will still remain very cautious about hiring so there's a dampening of hiring demand, and we will expect increased pressure to retrench.”
He added that the Government has ramped up support for workers including the SGUnited Jobs and Skills Package which aims to create 100,000 job, attachment and training openings.
MOM said in a separate press release that about 24,000 jobseekers have secured either jobs or work attachments under the initiative as of end-July.
Meanwhile, the Monetary Authority of Singapore’s deputy managing director of economic policy Edward Robinson said the central bank’s “policy stance remains appropriate, including in forestalling a broadening or deepening of disinflation pressures”.