Singapore's GDP expected to shrink between 4% and 7% as 2020 growth forecast cut again on COVID-19 impact
SINGAPORE: Singapore is bracing for its worst-ever recession, with authorities cutting growth projections for 2020 yet again as the economy continues to feel severe strain from the COVID-19 pandemic.
Singapore’s gross domestic product is expected to shrink between 4 and 7 per cent this year, down from the previous projected range of a contraction between 1 and 4 per cent, the Ministry of Trade and Industry (MTI) said on Tuesday (May 26).
The last time Singapore posted a full-year contraction was during the dotcom bust in 2001 when growth fell by 1.1 per cent. Its worst recession thus far happened during the Asian financial crisis in 1998. The economy shrank by 2.2 per cent then.
Tuesday’s cut in GDP growth forecasts deeper into negative territory marks the third revision by the country’s policymakers in slightly more than three months and follows a warning by the central bank last month of a worse-than-expected slump.
READ: Singapore will enter a recession this year, ‘significant uncertainty’ over duration and intensity - MAS
MTI said its latest downgrade is made in view of a deterioration in the external demand outlook for Singapore and the expected economic impact from the country’s “circuit breaker” measures.
However, it cautioned: “Notwithstanding the downgrade, there continues to be a significant degree of uncertainty over the length and severity of the COVID-19 outbreak, as well as the trajectory of the economic recovery in both the global and Singapore economies.”
MUCH WEAKER OUTLOOK
In its assessment, MTI said the pandemic’s disruptions to economic activity in major economies around the world, such as the United States and China, have been more severe than expected.
There are also “significant” uncertainties in the global economy, it said, citing the risk of subsequent waves of infections in major economies like the US and Eurozone that further disrupt economic activity.
“In particular, if infections start to rise and strict measures such as lockdowns and movement restrictions are re-imposed, the downturn in these economies could be more severe and prolonged than expected,” it said.
In addition, a growing perception of “diminished fiscal and monetary policy space” in many major economies could damage confidence in the ability of authorities to respond to shocks. This will undermine risk appetite and drive further financial market volatility, with negative spillovers for the broader global economy.
Against this backdrop, MTI said the outlook for the Singapore economy has weakened further since its last assessment in March.
Outward-oriented sectors, such as manufacturing and wholesale trade, will be adversely affected by the sharper-than-expected slowdown in many of Singapore’s key markets, as well as more prolonged supply chain disruptions.
The country’s circuit breaker, which has shut down non-essential businesses since Apr 7 to curb the spread of COVID-19, has further dampened domestic economic activity and domestic consumption.
Consumer-facing segments, such as retail and food services, are among those affected by these safe distancing rules. Firms across most sectors, especially those that cannot operate fully from home, have also been working under reduced capacity as a result of the closures and fall in demand, MTI said.
Sectors like construction and marine and offshore engineering, have also been severely hit by manpower shortages due to the outbreak of infections among foreign workers, especially those living in dormitories.
In addition, construction firms also had to contend with supply disruptions such as raw materials and work permit holders from Malaysia due to the country’s movement control order, said MTI’s economics division director Yong Yik Wei at a virtual press conference.
MTI expects the impact from COVID-19 to be the “most severe” in the second quarter. For instance, the halt in activities at most construction sites due to the circuit breaker measures will likely dampen the sector’s output “significantly”, Ms Yong said.
READ: Singapore cuts 2020 forecasts for NODX, total trade again on back of COVID-19 hit, lower oil prices
For the first quarter, the Singapore economy contracted by 0.7 per cent year on year, reversing from the earlier quarter’s 1 per cent growth on the back of declines in wholesale and retail trade, transportation and storage, and accommodation and food services sectors.
The accommodation and food services sector, in particular, plunged 23.8 per cent in the first quarter compared to a year ago. The accommodation segment had shrunk due to a plunge in international visitor arrivals and gross lettings at gazetted hotels, while food services contracted as food caterers, restaurants and other eating places recorded a fall in sales, MTI said.
The first-quarter figure was, however, better than the Government’s initial estimate of a 2.2 per cent decline.
This was due to better-than-expected performances in certain industries such as biomedical manufacturing, and finance and insurance, said Ms Yong.
The biomedical manufacturing cluster is expected to continue expanding, supported by the production of pharmaceutical and biological products, MTI said. The manufacturing sector saw a reversal in fortunes to grow 6.6 per cent year on year in the first quarter due to “robust” output expansions in the biomedical manufacturing and precision engineering clusters.
Among the services sectors, the information and communications sector is also projected to grow on the back of resilient demand from firms for IT and digital solutions.
DBS senior economist Irvin Seah said the better performance of these segments is due to services industries that are more digitalised and able to cope with disruptions from restrictive measures. He expects these segments to outperform this year and likely bounce back faster in the recovery phase.
“GRADUAL RECOVERY” IN SECOND HALF?
While MTI said it is expecting a “gradual recovery” in the second half of the year, its Permanent Secretary Gabriel Lim cautioned that this will depend on whether Singapore is able to contain its domestic outbreak after the circuit breaker is lifted, as well as how the global economy evolves.
Singapore will exit its circuit breaker as planned on Jun 1 but measures will be lifted in three phases. This cautious approach prioritises “both lives and livelihoods” and will allow the Government to have a “better control” of the situation, said National Development Minister Lawrence Wong on Monday.
Singapore has confirmed a total of 31,960 COVID-19 cases as of Monday.
READ: Transition to a 'new normal' after circuit breaker - How will measures be lifted beyond Phase 1?
Economists such as OCBC’s head of treasury research and strategy Selena Ling said risks still dominate in the second half, including subsequent waves of infections and re-imposition of containment measures around the world and a deterioration in the local labour market.
“(The labour market) is clearly going to see a further fallout in the months to come as the fiscal assistance programs fade with time, hence the potential need for continued support to tide over this challenging period,” she wrote in a note.
Deputy Prime Minister and Finance Minister Heng Swee Keat will announce a fourth round of support measures on Tuesday afternoon to help the country tide through the coronavirus outbreak.
President Halimah Yacob has given her in-principle support to draw on the country’s past reserves for the fourth relief package, which Mr Heng dubbed the “Fortitude Budget” and will have jobs as a key focus.
READ: President Halimah Yacob gives in-principle support to draw on reserves for 4th COVID-19 support package
Asked for its outlook on unemployment, an MOM spokesperson said the Government’s support measures have so far cushioned the impact of COVID on the labour market.
“But from the second quarter onwards, we do expect that the labour market conditions will deteriorate and we have to be prepared for a rise in retrenchments. Much of it will depend on the pace of opening up businesses, not just in Singapore but around the world,” the spokesperson said, citing “considerable uncertainty”.
Separately, Enterprise Singapore on Tuesday cut its 2020 forecasts for non-oil domestic exports (NODX) and total merchandise trade, citing the likely impact of the coronavirus outbreak and lower oil prices.
NODX is now expected to come in between -4 per cent and -1 per cent this year while the forecast for total trade has been adjusted downwards to -12 per cent to -9 per cent.