SINGAPORE: It is COVID-19 rather than trade wars or geopolitical events that has triggered a long overdue global recession in 2020.
In Singapore, where trade in goods and services accounts for over three times of its GDP, the impact of the pandemic was almost immediate.
The economy contracted by a 3.3 per cent annualised rate in the first-quarter, while preliminary estimates for the second quarter shows that the economy shrank by as much as 41.2 per cent annualised.
That is the worst ever plunge in economic activity since data has been collected on a quarterly basis. Given the circuit breaker between Apr 7 and Jun 1, and phase one restrictions which started on Jun 2, the unprecedented plunge in economic activity is expected.
International visitor arrivals fell from an average of 1.6 million a month in 2019 and 1.7 million in Jan to just an average 815 visitors a month in April and May.
Changi Airport, which handled an average of 1,023 flights daily in May 2019 handled just 144 flights a day this May, with April seeing even 16 per cent lower aircraft movements - the lowest in the airport's history.
Singapore ports handled 37.2 million twenty-foot equivalent units (TEUs) of containers in 2019 or an average of 3.1 million TEUs every month. For the second quarter of this year though, it fell 6.2 per cent from the previous year to an average of 2.9 million a month.
JOBS MARKET WEAKENED
Given these slowing economic activity indicators, it therefore came as no surprise that the Ministry of Manpower (MoM) reported this week that labour market conditions weakened in the second quarter.
All three key industries, specifically manufacturing, construction and services, saw reduced employment in the second-quarter of this year.
According to the MoM report, the contraction was sharpest in food & beverage services, retail trade, arts, entertainment & recreation and education, within the service-producing industries. Construction also saw a steep decline in employment as construction activities grounded to a halt as workers were confined to their dormitories.
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Employment contraction in manufacturing was more modest in comparison as some key manufacturing activities such as semiconductors and the biomedical sector were less affected while it was a different story for transport engineering.
For instance, according to Keppel Corp, Keppel Offshore and Marine's (O&M) Singapore workforce was reduced to about 1,200 persons at the start of the circuit breaker in April, from about 24,000 in March.
The net effect is that overall unemployment rate in Singapore rose to 2.9 per cent in the second quarter according to preliminary data. The jobless rate for residents and citizens rose to 3.9 per cent and 4.0 per cent respectively.
This marks the highest jobless rate in over a decade. In all, total employment plunged 121,800 in the second quarter, more than four times compared to the 25,600 contraction seen over the previous three months. Retrenchments doubled to 6,700 in the second quarter from 3,220 the quarter before.
MACRO RISKS STILL REMAIN
The worst of the COVID-19 crisis may have passed for some countries, but the macro outlook is dominated by uncertainty even as economies around the world are slowly emerging from their respective lockdown shadows.
However, reopening risks remain, as can be seen from the resurgence in infection cases. How quickly can surviving businesses in advanced economies recover from such deep recessions, let alone those in emerging markets and developing economies?
Governments and central banks around the world are still taking a “whatever it takes” approach to minimise the harm to their economies. “Whatever it takes” in Singapore saw the government rolling out four sets of budgetary measures over four months, equivalent to almost 20 per cent of GDP.
A new National Jobs Council, chaired by Senior Minister Tharman Shanmugaratnam, who has experienced several past recessions, was created.
This comes with the implementation of numerous support programmes to help job-seekers and mid-career individuals gain skills and employment during this challenging time, while the Jobs Support Scheme helped employers with wage costs and cushion the loss of jobs.
These efforts are expected to ease some of the pressure on the local labour market in the coming months.
The increasing use of technology could help policy makers create jobs when businesses may be reluctant to hire during this recessionary period.
The COVID-19 pandemic forces huge changes in how people live and work, and how businesses, big and small operate. Singapore is adapting as well. The Ministerial Committee for Digital Transformation has been set up to accelerate the city-state's adoption of digital technology.
This is expected to lead to more jobs and business opportunities in the information and communications technology sector.
TOO MANY UNCERTAINTIES REMAIN
Despite these best efforts, Singapore’s labour market is expected to weaken because the bulk of the global economy will still be grappling with recessionary conditions in the second half of this year.
After the record plunge in the second quarter, GDP is expected to rebound in the third quarter as the economy emerges from the circuit breaker.
On a year-on-year basis, the economic contraction will likely narrow in the next two quarters, but for many industries, there are still significant challenges ahead.
For instance, for the local construction sector, when can contractors bring more of their workers to work sites? If subcontractors do not start work soon, they may not receive any payments in the second-half of this year. Can they survive?
Those in aviation, travel, hospitality-related and the F&B industries wonder how long travel restrictions, including social distancing measures, will remain in place. Even if they are eased, when will Singapore see 1.6 million tourists a month again? When will Changi airport handle more than 1,000 flights a day again? When will PSA International handle 37 million TEUs a year at its ports again?
Without any visibilities on these questions, many companies, while keeping costs in check, will ask, how long can they continue to bleed losses every month as they try to ride through the worst recession in Singapore’s history?
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The Ministry of Manpower in the accompanying press release to the preliminary second quarter jobs report warned that the “external economic environment remains weak and some countries are experiencing a second wave of infections. Conditions for travel-related sectors remain particularly challenging. COVID-safe management measures will also moderate the pace of recovery in other sectors. Hence, softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench.”
As such, it is likely that Singapore’s jobless rate could increase to 3.5 per cent to 4.0 per cent in the second half of 2020.
MORE MEASURES ARE NEEDED
While this is below the near 5 per cent unemployment rate reached during the worst of the 2009 global financial crisis, given the uncertain and uneven recovery path, the government may have to tweak and extend some of the existing support measures such as the JSS - which is set to expire after covering salaries in August with pay-outs disbursed in October - to give businesses that are still trying to get back on their feet an extra helping hand and ease the pressures on the local labour market.
It is encouraging to note that the government has extended the foreign worker levy waivers for firms in the construction, marine shipyard and process sectors until December. If the situation on the ground warrants, the quantum of these waivers and rebates should be re-adjusted.
Similarly, tweaks to property rental relief measures can be considered since some businesses may not be able to get back on their feet yet even when the Singapore economy emerges from the shadows of the circuit breaker, phase one and phase two measures - especially those in the travel and hospitality-related industries.
On the individual and business levels, although the managing director of the Monetary Authority of Singapore (MAS) Ravi Menon has reassured borrowers, who won the right to defer their loan repayments, that they need not repay their full sums owed when relief measures covering loans repayments, debt and insurance premiums announced in March ends on Dec 31, a further extension may be required.
This will obviously be dependent on the state of the economy towards the end of the year, bearing in mind that extensions of relief measures have wider implications on both borrowers and lenders as well as on the broader property market.
The bottom line is that policy makers who have their work cut out this year, can and will adjust relief measures along the way to contain the impact of this unprecedented economic recession.
Despite these measures, there will still be many businesses who will fail. That is the depressing reality of a deep global recession.
Song Seng Wun is an economist with CIMB Private Bank.