Originally Posted by
reporter2
THE WORST RECESSION?
Economy may be in bigger trouble than many realise
Even GDP contraction of 4% - much less than worst-case fears of 10% - would dwarf the 2.2% drop in 1998 crash
Mon, May 04, 2020
Annabeth Leow
THE Singapore economy is headed for what many said will be an "unprecedented recession" this year - and watchers are warning that most people may not have grasped how tough the road to recovery could get.
Though the gross domestic product (GDP) is already predicted to shrink by between 1 per cent and 4 per cent this year, the Monetary Authority of Singapore (MAS) last week warned of "significant downside risks to Singapore's growth outlook".
Noting that there have been no declines this sharp in living memory, Singapore Management University assistant professor of finance Aurobindo Ghosh conceded that "the potential impact and subsequent recovery is highly speculative despite the best efforts of many economists".
Still, he warned of "a recession with massive job losses, reduction in productive activities and lack of access to credit for both businesses and households alike" across the world.
Even a contraction of just 4 per cent - more modest than private-sector economists' worst-case fears of 10 per cent - would dwarf the 2.2 per cent decline in 1998. The Asian financial crisis was the biggest recession since a plunge of 3.1 per cent in 1964.
And even the world's largest economies would struggle to endure a double-digit drop, noted economist Tan Khay Boon, a senior lecturer at SIM Global Education.
"There will be a large decline in output, closing down of a large number of companies, and a high rate of unemployment," he said. "Households will suffer a large decline in their standards of living and many other social issues will arise as a result."
Professor Sumit Agarwal, who heads the National University of Singapore's finance department, told The Business Times that countries face "massive negative GDP growth" in the absence of government action.
"If I don't get a haircut now, that demand is just gone, it's not that I can go and get that haircut twice in future. That money is lost forever," he explained. "One way to shore up those numbers is to do public spending, because, right now, private consumption is almost zero."
Indeed, the MAS just reaffirmed that fiscal policy, and not monetary, "will play the primary role in mitigating the impact of the recession".
One traditional route, which Prof Agarwal did not rule out for Singapore, is investment in public works.
But unusual times can also call for unusual action, observers noted.
Unlike with earlier recessions that stemmed from just one industry, such as financial services, Moody's Analytics regional economist Steve Cochrane said this crisis demands a "very broad approach" to support job seekers and smaller businesses.
"One challenge comes from the fact that so much of the service-producing economy and small and medium-sized enterprises are caught up in the lockdowns around the world."
"Many of these enterprises have little cash on hand to survive a lengthy closure, and they often lack lines of credit or relationships with lenders," Mr Cochrane said, calling for support with small businesses' payroll assistance and operations.
But, with enterprises, Prof Agarwal told BT that a loan glut would just ramp up corporate debt ahead of a return to higher interest rates, which could stymie future business activity.
"So far, most governments have shied away from playing with the tax codes," he said, citing potential concern over tax revenues, "but I think they will have to do some corporate tax review because corporates... need more cash flow to go invest."
Comparing the pandemic to a natural disaster like a tsunami, rather than a financial crash, Prof Ghosh said macro-prudential policies or banking regulations, like in the global financial crisis, "might have limited effectiveness till businesses are open".
On the other hand, giving the vulnerable essential items and short-term consumer loans while they are out of work might be a better way to get back to business as usual, he said.
Dr Tan added: "Other than tax cuts and increases in welfare spending, the less usual approaches, such as a reduction in Central Provident Fund (CPF) contribution rates, waiver of fees and other government-linked costs, and more spending in job protection schemes, may also occur."
CPF cuts could be in employer contributions, to reduce labour costs, he suggested - although a lower employee portion would also yield more disposable income for households.
Indeed, jobs are a serious concern for economy watchers, who are unanimous that this year's layoffs will top the 28,300 in 1998 and the most recent peak of 23,430 in 2009.
That is even with a wage subsidy scheme that BofA Asean economist Mohamed Faiz Nagutha called "one of the largest in the world", at more than 5 per cent of Singapore's GDP.
"Despite this unprecedented support, a downturn in the labour market will be hard to avoid," he told BT. "Ultimately, no amount of policy support can plug the fast plunge in demand."
Chua Hak Bin, senior economist at Maybank Kim Eng, also cautioned that wage subsidies must be temporary, as they would be less efficient if the recession or recovery drag on.
For instance, travel may not bounce back to pre-pandemic levels for another two or three years, which bodes ill for workers in the aviation, retail and recreation sectors.
"We think the recovery will be slow and protracted, as governments worldwide will be cautious about unwinding lockdown measures and border controls," Dr Chua added.
As the crisis is a global one, Mr Cochrane said Singapore "will not return to its former vibrancy until all regions of the world re-open and accelerate their economies".
Even after the pandemic is over, companies - burnt by viral supply-chain disruptions - "may 'reshore' production to reduce geopolitical or public health risks faced abroad".
"Such a trend could reduce Singapore's role as a hub of global business," Mr Cochrane suggested.
Already, nearly nine in 10 people here expect the economic impact of Covid-19 to last for a year or more, according to a recent survey led by Prof Ghosh, who agreed with their view.
"However, I can see the expansion of the digital economy being further catalysed," he added, citing growth in areas such as e-payments, online retail, and artificial intelligence. "Singapore is on the right track. I am cautiously optimistic the world economy will see a much faster turnaround than the global financial crisis."
Reply With Quote
