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

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

A view of a largely empty Changi Airport Terminal 2 a day before its 18-month closure due to the im
A view of a largely empty Changi Airport Terminal 2 a day before its 18-month closure due to the impact of the coronavirus disease (COVID-19) outbreak, in Singapore April 30, 2020. REUTERS/Edgar Su

SINGAPORE: At the start of the year, Toh Thiam Wei, whose company runs walking tours for tourists, was finalising new itineraries that would make up a key part of his business expansion plans in 2020.

Edgar Lim’s events space at the Esplanade mall was already receiving bookings for later in the year and even enquiries for 2021, while Pan Jia Jian and his shareholders were making plans to spruce up their café along Tanglin Road with a new look and menu.

Just months later, these would be completely turned on their head by a novel coronavirus outbreak.

By the end of March, Singapore had stopped the entry and transit of all short-term visitors, and suspended all sightseeing and guided tours. The launch of Mr Toh’s new curated tours was shelved.

Bookings dried up for Mr Lim, and when the “circuit breaker” aimed at curbing the spread of COVID-19 kicked in on Apr 7, non-essential businesses like his had to be closed.

READ: Singapore’s circuit breaker and beyond: Timeline of the COVID-19 reality

The safe distancing rules and a ban on dining in under the circuit breaker also threw a curve ball at Mr Pan and his team who ditched the revamp to focus instead on survival plans such as offering deliveries.

But losses ran up as the months went by. The Boufe Boutique Cafe, which marked its fifth anniversary in February this year, will close for good when its lease runs out on Jun 30.

“We definitely did not foresee that things would deteriorate so rapidly,” Mr Pan said.

TRAILS OF IMPACT

The impact of COVID-19, initially on selected sectors before broadening out to envelope much of the economy, has been swift.

This prompted the Government to draw up an unprecedented combination of four Budgets containing wage subsidies, tax rebates and rent relief to give companies and workers more help over a longer period. These added up to almost S$100 billion.

Still, a worst-ever recession is on the cards, with the Singapore economy expected to shrink between 4 and 7 per cent this year. Just four months ago, policymakers were looking at growth of 0.5 to 2.5 per cent.

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

 “I heard from others in the travel industry that even SARS (severe acute respiratory syndrome) was not as bad,” said Mr Toh, who founded Indie Singapore six years ago.

The trail of damage started just before Chinese New Year for the tour guide when participants for his pay-as-you-wish walking tours dropped to below 10, from the usual 15 to 20.

When February came, cruise lines were cancelling their port calls in Singapore and passengers on board these ships wanted to call off their private tours. “A lot of our private tours come from these cruises,” said Mr Toh, adding that refunding the deposits for these cancelled bookings was a “big hit".

As travel restrictions were stepped up in Singapore and around the world in March, he recalled seeing his “booking calendar empty out, with cancellations up until tours booked for August”. It became obvious that the launch of the new tour itineraries would have to wait.

On Mar 26, Mr Toh conducted his final tour with travellers before the suspension of all such tours kicked in at 11.59pm. Barely two weeks later, his remaining source of income dried up as corporate and school tours became off limits during the circuit breaker.

“More cancellations,” he said. “That’s the final nail in the coffin.”

Official data thus far shows tourist arrivals to Singapore in free fall amid the pandemic. Visitor numbers plunged to 239,899 in March, from about 1.7 million in January and 732,757 in February. A ban on short-term visitors that took effect on Mar 24 took the monthly figures to a historic low of 748 in April.

Prime Minister Lee Hsien Loong said in a national broadcast earlier this month that industries that depend on travel will “take a long time to get back on their feet and may never recover fully”.

Tourist arrivals Jan-Apr 2020 chart

As a business that relied on crowds, Mr Lim, who runs events space room2f, saw the impact unfolding as early as Feb 7 when Singapore raised its DORSCON level to Orange.

The 39-year-old recalled getting scores of cancellation and postponement enquiries that day. It marked the start of a “drastic drop” in sales and the business, which until then was making monthly profits, began seeing losses.

But the biggest hit came when it had to be shut for the circuit breaker period. “(It is now a) 100 per cent drop in revenue,” Mr Lim said. The business remains closed as only those that operate in settings with low transmission risks can reopen under the first phase of easing circuit breaker restrictions.

Events space Room2f
room2f, an events space located within the Esplanade mall, has been shut since the "circuit breaker" banned all non-essential businesses. (Photo: Yeo Kai Wen/room2f)

Rental rebates from his landlord have helped to relieve some pressure but there are still bills to pay such as utilities and insurance. To cut manpower costs, he stopped employing part-timers.

With zero revenue for two months now and possibly in the near future, Mr Lim said he is focusing on “survival for the rest of this year” – a much more pessimistic outlook compared to the start of the year.

“Moving towards 2020, we had hoped to be on the same trajectory as we did in 2019,” he said, noting that business had picked up since relocating to the Esplanade mall early last year. It had at least five event bookings a week, ranging from corporate seminars to private parties. On days with no events, people could walk in to relax or work by paying an hourly fee.

“If without COVID-19, we would be doing okay.”

READ: 'It’s about trying until our last breath': New F&B players cook up survival plans for COVID-19 crisis

Like many others in the food and beverage industry, Boufe, where Mr Pan is head chef, has been financially pummelled by the coronavirus outbreak.

A 70 per cent drop in walk-in customers saw monthly sales fall to S$20,000 for the months of February and March but expenditure, including rent, manpower and food costs, held up at about S$30,000 a month. To make sure it could issue salaries and pay suppliers, the owners took up a S$20,000 loan in February and even dipped into their savings.

When dining-in became a no-go due to the circuit breaker, the cafe pivoted to deliveries and jazzed up its menu to stand out from the competition. But these added to the costs as it had to ramp up marketing, deploy more manpower and absorb delivery fees for orders above a certain amount.

Boufe Boutique Cafe
Boufe Boutique Cafe along Tanglin Road will close when its lease ends on Jun 30. (Photo: Boufe Boutique Cafe/Facebook)

A slight increase in April sales to nearly S$30,000 was not enough to stop the bleeding, and the owners decided it was perhaps better to call it a day when the tenancy ends in June.

“Our biggest issue lies in having a sufficient amount of immediate cash flow as we still have to make payment to our suppliers and issue salaries to our staff,” said Mr Pan.

Breaking the news to his 10 full timers was “one of the hardest things” to do as most have been with the cafe for years and there are sole breadwinners among them.

“This is truly the last resort … Dismissing them was not (what) we wanted.”

READ: Cocktail bar, Italian restaurant call it quits amid COVID-19 challenges for F&B sector

MORE FIRMS TO CLOSE

Figures released by the Department of Statistics this week showed 3,706 business closures in May.

Cessation numbers have thus far stayed within a tight range of 3,671 to 3,845 over the past five months. And while the latest monthly figure was a shade below April’s 3,771, the likely scenario is that there will be more like Boufe that decide to throw in the towel.

Senior Minister of State for Trade and Industry Chee Hong Tat said in Parliament last week that an uptick in business closures is to be expected given the severe strain from COVID-19.

Business formation and cessation Jan-May 2020 chart
 

Economists noted that cessation numbers tend to be lagging indicators and with the Government’s relief measures providing support to some extent, more closures will only show up later.

Casualties would likely come from the worst-hit sectors like tourism and hospitality, said OCBC’s head of treasury research and strategy Selena Ling. They could also be smaller entities that do not have the capability to digitalise, or those that were already weakened by the trade tensions last year.

COVID-19 has also added new impetus to some ongoing structural shifts such as online shopping, which DBS senior economist Irvin Seah said will pile on the pressure for some businesses.

“Even more people will turn to e-commerce post-COVID-19 and you might see more retail shops closing for good,” he said.

READ: COVID-19: For some businesses, enhanced online browsing to drive sales could become a new norm

SLOW RECOVERY

Other measures of the economy have showed signs of a worsening impact.

Retail sales, one of the key monthly indicators, plunged 40.5 per cent in April as the circuit breaker curbs shuttered a large swathe of business activities across the country. This marked the index's biggest drop since 1986 when Singapore’s growth rate records started.

At the most recent briefing on Singapore’s economic performance, the Ministry of Trade and Industry (MTI) said second-quarter gross domestic product (GDP) will likely bear the brunt of the COVID-19 hit.

Private-sector economists have since thrown out some eye-watering forecasts for the April to June quarter, ranging from eight to 20 per cent contraction on a year-on-year basis. The economy shrunk 0.7 per cent in the first three months of 2020.

Retail sales Jan-Apr 2020 chart

A gradual recovery could take shape later in the year, policymakers and economists said, but a myriad of uncertainties remain.

These include the risk of subsequent waves of infections in major economies and further disruptions on global economic activity. Domestically, lifting the circuit breaker in three phases will also keep activities muted for a while longer.

Meanwhile, simmering geopolitical uncertainties may pose more risks, said Standard Chartered chief economist for ASEAN and South Asia Edward Lee.

Economists have ruled out a “V-shaped” economic recovery – a short, sharp collapse followed by a bounce back to pre-virus levels of activity.

They have compared the potential recovery to the shape of other letters of the alphabet, such as a U, which indicates a sharp collapse followed by a sustained period of weakness before a recovery gains quick momentum. Others expect a “swoosh”, which would involve a longer steep decline to the bottom of the economic cycle before a slow recovery takes hold.

Mr Seah expects the economic contraction to last for at least five quarters until the first quarter of 2021. 

Overall real GDP may only return to pre-virus levels by the end of next year, he added. That translates into a 24-month recovery cycle, compared to the 18 months it took for the economy to get back on its legs after the Asian financial crisis in 1998 and the global financial crisis in 2009.

The coronavirus disease (COVID-19) outbreak in Singapore
Office workers wearing face masks take their lunch break at the central business district amid the COVID-19 outbreak in Singapore on Jun 2, 2020. (Photo: Reuters/Edgar Su)

The slower-than-usual recovery will hammer the labour market.

“Growth must improve if you want employment to improve but this will be quite different from past recessions,” Mr Seah said. “This recovery is going to be very slow.”

For the first quarter, overall unemployment inched up from 2.3 per cent to 2.4 per cent. Retrenchments rose to 3,000 from 2,670 in the previous quarter, according to preliminary data released by the Ministry of Manpower (MOM) in April.

An MOM official has said that labour market conditions will deteriorate from the second quarter. “We have to be prepared for a rise in retrenchments,” he said at the recent briefing on Singapore’s economic performance.

READ: Retrenchments and withdrawn job offers: Singapore's labour market shows signs of COVID-19 strain

Perhaps a sign of what’s to come could be gleaned from the number of job advertisements.

Job postings in Singapore have decreased 24 per cent at the end of May compared to a year ago, according to data from global job site Indeed. The fall was across most sectors, with those affected most by the circuit breaker registering the biggest declines. These include food and beverage (F&B) and hospitality.

Another report from JobStreet showed job listings in event management, retail and F&B down between 81 and 85 per cent in May. Ads from the aerospace industry tumbled 95 per cent and those related to beauty and fitness fell 92 per cent.

To be sure, both reports also noted sectors that are still hiring, such as healthcare, software, production and manufacturing, as well as computing and IT.

“Nevertheless, the impact of COVID-19 may persist for some time. It is unlikely that the Singapore labour market will rebound immediately to what it was pre-crisis,” Indeed’s Asia economist Callam Pickering said.

READ: More companies announce wage cuts, no-pay leave amid COVID-19 economic downturn

For the full year, Ms Ling from OCBC is expecting total unemployment to hit 3 to 3.5 per cent. Mr Seah, the DBS economist, thinks this figure could go up to 3.6 per cent by the year-end and total retrenchments to be around 45,600.

For comparison, the overall unemployment rate hit a high of 4.8 per cent in September 2003 during the SARS outbreak. In September 2009 amid the global financial crisis, it was 3.3 per cent.

The Government has since unveiled a slew of relief measures, including giving wage subsidies under the Jobs Support Scheme, a S$2 billion SGUnited Jobs and Skills Package to create 100,000 job and training opportunities and forming a new National Jobs Council.

New graduates entering a grim labour market also get help – S$100 million has been set aside to fund the SGUnited Traineeships Programme which will create 21,000 traineeship positions.

Economists said these relief measures will help to cushion the impact. They can also go some way in deterring longer-term unintended effects of a recession, such as underemployment and possible weaker wages and career advancements for recession graduates, said Mr Seah.

READ: The Big Read: In an abysmal job market, a less conventional route beckons for fresh grads

Darren Ching is among the 48,500 fresh graduates hoping to enter the workforce this year. But after sending out more than 50 job applications over the past two months, calls for two interviews were all he got and the job hunt continues.

The communications studies graduate from Nanyang Technological University (NTU) has his eyes set on full-time consulting and business-related jobs. He had started off by applying to technology firms before broadening his search to other industries and internship positions.

He said he’s been told “not to be too picky” amid a dismal job market but he wondered if taking up a job he has no interest in would be the right thing to do.

“A big discussion among us graduates right now is the concept of settling,” said Mr Ching.

“There are people who have told us that we cannot afford to be choosy or picky – we know but there’s a voice in us that’s saying ‘Why not hang in there for a while more before you raise the white flag’.”

Nevertheless, he has given himself a deadline.

“To be responsible, if I don’t hear anything or have any leads by the end of June, then it’s probably time for me to grab anything,” he said.

READ: Iswaran, Chan Chun Sing to chair new ministerial committee on digital transformation

HARD DECISIONS

Mr Toh has a similar plan – to finish the projects on hand before mulling his options in September.

Working out of a home office and being the only employee for his company have spared him from the burden of overhead costs, but he said he would not be able to last too long if the situation of zero income continues. Already, he knows of tour guides who are considering switching careers.

“The outlook is grim,” said the 39-year-old.

Walking tour agency Indie Singapore
Toh Thiam Wei, owner of Indie Singapore, seen with tourists during a walking tour around Singapore in early 2019. His travel business has been severely affected by the COVID-19 pandemic. (Photo: Indie Singapore)

Tourists are unlikely to restart travel plans soon and even if they do, they might tighten their purse strings, he said. Locally, it could also take a while to get demand for corporate and school tours going again if rules on large group gatherings and guided tours remain.

“Obviously, this business isn’t something that I’m willing to give up so easily but if we continue to see this (downturn), I will have to re-evaluate a few months down the road," said Mr Toh.

“Because at the end of the day, there are still bread and butter issues to take care of.”

Mr Lim wants to press on as he is "cautiously hopeful" that 2021 will be better. But from now until then, things are uncertain such as how safety guidelines could evolve.

"The current advisory limits gatherings to a small number of people. It would help a great deal if the authorities could specify the number of people gathering to a given size of space," he said. 

READ: 'To say I’m worried is an understatement': Small businesses struggle to navigate new normal post-circuit breaker

For Mr Pan and the shareholders of Boufe, the many uncertainties ahead are why they decided to cut losses now.

“With the (lease) deadline looming over us, we had to make a decision … It was a dilemma which we spent weeks going back and forth, and eventually coming to the conclusion that we would be taking too huge a risk if we were to head into the unknown and renew our lease.”

Asked for their plans after closing the cafe this month, Mr Pan said others in the management will venture out of F&B. His passion, however, lies in cooking.

“I too am uncertain and worried about future prospects however I believe that when one door closes, another one opens,” he said. “We just have to look in the right direction.”

BOOKMARK THIS: Our comprehensive coverage of the coronavirus outbreak and its developments

Download our app or subscribe to our Telegram channel for the latest updates on the coronavirus outbreak: https://cna.asia/telegram

Source: CNA/sk

Bookmark