Some economists looking at full-year Singapore recession as outbreak worsens

Thu, Mar 12, 2020

Annabeth Leow


PRIVATE-SECTOR economy watchers last month slashed Singapore's full-year growth forecast by more than half - but, as global uncertainty swells, some now believe that even that downward adjustment might be too rosy.

Gross domestic product (GDP) is tipped to grow 0.6 per cent in 2020, according to results of a poll on Wednesday, down from 1.5 per cent at the last survey by the Monetary Authority of Singapore (MAS) in December.

In the latest poll, respondents see a near 30 per cent chance of economic contraction - sharply higher than the earlier 2 per cent risk.

Recession fears first emerged last month when the MAS and Ministry of Trade and Industry slashed their official forecast to between 0.5 per cent contraction and 1.5 per cent growth.

But with the Monetary Authority of Singapore (MAS) survey of professional forecasters sent out on Feb 18, analysts noted that the poll would not have captured the ill effects of the widening Covid-19 epidemic, or the oil price war between Russia and Saudi Arabia.

In fact, Maybank Kim Eng slashed its house forecast on Wednesday to a full-year contraction of 0.3 per cent - in other words, a recession - from an earlier guide for 1.1 per cent growth.

Irvin Seah, senior economist at DBS, recently suggested that Singapore could see a worst-case stagnant zero growth if the virus-related slowdown persists into next quarter, while Bloomberg's South-east Asia economist, Tamara Henderson, put her worst case at a contraction of 0.8 per cent.

The gloomier outlook in the survey came on expectations of weaker economic performance across the board. The manufacturing, wholesale and retail trade, and accommodation and food services industries are now expected to shrink in the year, against earlier predictions of expansion.

But Mr Seah warned that these industries could fare even more poorly.

He told The Business Times that "there's going to be a big downward revision to the forecast in the next survey", especially in accommodation and food services, which is now projected to decline by 1.6 per cent.

The negative forecast for wholesale trade "could also be lowered because of the oil price", Mr Seah added.

Private consumption is now expected to grow by 1.9 per cent in 2020, down from the earlier forecast of 2.7 per cent. The survey respondents' projection for non-oil domestic export growth also plunged from 1.6 per cent to 0.2 per cent, after a separate official downgrade in February.

On the upside, the survey forecast also does not take into account the second round of fiscal stimulus that Deputy Prime Minister Heng Swee Keat said this week is in the offing, Maybank Kim Eng senior economist Chua Hak Bin suggested to BT.

Mr Heng, who is also Finance Minister, said on Wednesday that the government may tap past reserves to fund post-Budget relief measures.

"Our GDP forecast takes into account only the first support package and MAS easing to neutral," Dr Chua added, referring to the aid pledged by Mr Heng in the Budget last month.

"Whether the second package has a more substantial positive impact will depend on the size and details."

Otherwise, the MAS noted in its survey report that "more accommodative global financial conditions emerged as the most-cited factor that could drive an improvement in financial market and lending conditions".

Some 70 per cent of respondents named global financial easing as an upside driver, while 40 per cent also said that a weaker Singapore dollar nominal effective exchange rate (NEER) could be a boost to growth.

As private-sector economists trim their inflation outlook amid a slightly higher unemployment forecast, the market consensus is for the MAS to ease to a "zero-slope" neutral stance at its April monetary policy meeting.

The central bank could also lower the mid-point of the policy band in which the Singdollar can trade, but Mr Seah told BT that such a move would be a more drastic sign that "signals base-case assumption of recession".

On the other hand, United Overseas Bank economist Barnabas Gan stuck to his forecast of 0.5 per cent growth, despite a potential technical recession - two straight quarters of quarter-on-quarter contraction - in the first six months.

That estimate is "on the basis that the coronavirus is successfully contained by the middle of this year", he told BT, with the caveat that "the negative impact... will likely be affected by how long and severe Covid-19 is".

The MAS survey reflects the views of 21 analysts who monitor the Singapore economy, and does not represent the central bank's own forecasts.