Singapore may take 'some quarters' to bounce back from 2020 recession

Covid-19 erases previous economic gains since 2016; weak recovery likely in H2 but many uncertainties remain

Wed, Aug 12, 2020

Annabeth Leow

https://www.businesstimes.com.sg/gov...2020-recession

ALL eyes are now on Deputy Prime Minister Heng Swee Keat's arsenal of fiscal bazookas, as the Covid-19 pandemic drags the economy towards its worst recession since independence.

That's as the deadly novel coronavirus, which reached Singapore's shores in January, has done enough damage in just half a year to wipe out economic gains since 2016.

Singapore's economy is now expected to shrink by between 5 per cent and 7 per cent this year, after the Ministry of Trade and Industry (MTI) tightened its forecast on Tuesday.

The projection "essentially means the growth generated over the past two to three years will be negated", Minister for Trade and Industry Chan Chun Sing added at a briefing.

The gross domestic product (GDP) shrank by 13.2 per cent year on year - widening from 0.3 per cent in the quarter prior - in the second quarter, which was marred by a two-month "circuit breaker" or quasi-shutdown.

To be sure, a pick-up is all but inevitable after that trough, which was Singapore's worst quarter on record.



Yet it could take just as long for the economy to recover lost ground: The GDP will likely return to its end-2019 levels only in the first half of 2022, wrote Citi's Kit Wei Zheng and Ang Kai Wei - a possible timeline that other economists agreed with.

Liu Yun, Asean economist at HSBC, told The Business Times that it would take "at least some quarters for activity to return to the pre-pandemic level" - likely late 2021 at the earliest.

Some watchers also cut their own full-year forecasts, including United Overseas Bank economist Barnabas Gan, who expects a drop of 5 per cent, and DBS senior economist Irvin Seah, who predicts a 6.5 per cent decline.

Citi's outlook was even dourer at 7.5 per cent, which falls below the lower bound of the official forecast.

While Gabriel Lim, the permanent secretary for trade and industry, said that he expects a quarter-on-quarter rebound from July to September, he added: "How big it is, which sectors in particular, I think remains to be seen."

In any case, even a sequential recovery will not pull the year-on-year GDP change into positive territory - especially as downside risks remain, including rising geopolitical tensions between the United States and China.

The MTI added in a statement that, even with a narrower forecast locked in, "there continues to be significant uncertainty over how the Covid-19 situation will evolve in the coming quarters, and correspondingly, the trajectory of the economic recovery".

For instance, the ministry highlighted that the spread of the virus among workers in dormitories could drive a "deeper and more protracted" downturn in construction and marine and offshore engineering - with negative spillover into other industries.

Meanwhile, Monetary Authority of Singapore (MAS) deputy managing director of economic policy Edward Robinson warned that corporate debt could come under pressure "globally, regionally and in specific segments within the domestic economy".

Indeed, Mr Chan told the press that the recovery "will still be some time yet" and is expected to be both bumpy and uneven across sectors.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye also wrote: "Recovery in the second half will be sluggish and choppy, dampened by the slow reopening, border controls, strict social distancing rules and foreign worker shortages."

Mr Seah, from DBS, has predicted five straight quarters of year-on-year contraction until early 2021. The subsequent growth next year, he noted, will be due only to a low base effect.

Still, support could come soon from DPM Heng, who oversaw a record four Budgets this year in his other role as Finance Minister.

To a query on whether Singapore could see another round of large-scale measures, Mr Chan said that he would leave the matter to comments by Mr Heng "in due course".

A team from the MTI and Ministry of Finance (MOF) found that the four Budgets may have jointly prevented a real GDP loss of about 5.5 per cent. Khoon Goh, head of Asia research at ANZ, also told BT that "the economy would have fared worse were it not for the large fiscal support measures ... totalling 19 per cent of GDP".

That's even as Mr Robinson, who is also the MAS chief economist, maintained that the central bank's Singapore dollar policy "remains appropriate including in forestalling a broadening or deepening of disinflation pressures" after an easing in April.

Various watchers have already dubbed the latest quarterly contraction a trough for the economy, with the GDP dragged down by plummeting domestic demand and services.



Services industries contracted by a faster 13.4 per cent year on year in the second quarter, while construction plunged by 59.3 per cent amid labour disruptions, including lockdowns at foreign worker dormitories.

Manufacturing - which has been the best-performing sector this year - shrank by 0.7 per cent on a downgrade from flash estimates, as June factory data proved disappointing.

Fixed asset investments - spending on facilities, equipment and machinery - slowed to S$1.9 billion, from S$12.4 billion in the first quarter.

Meanwhile, the workforce shrank by 131,500 - steeper than the net plunge of 25,200 in the first quarter - while unemployment ticked up to 2.9 per cent, from 2.4 per cent before.

The MTI blamed the poor showing in part on circuit-breaker measures in April and May, which the MTI-MOF team concluded knocked at least 2.2 per cent off the annual real GDP.

The estimate, which pegs the cost of the shutdown at nearly S$11.3 billion, does not include the impact of other restrictions that were still in place after the circuit breaker ended.

The Economic Development Board remains "cautiously optimistic" about attracting investments in the medium term, according to Damian Chan, the agency's executive vice-president of planning and policy.

Besides semiconductors, precision engineering and biomedical sciences, even chemicals could get a boost from activities such as handling raw materials for masks, he said.

Yet Mr Chan Chun Sing warned that, unlike past crises, Singapore cannot wait out the coronavirus, since the pandemic will permanently alter value chains.

"We do not have all the answers yet, and the ground realities are fast evolving, often without precedence. But we know that staying still is not an option," he told the press briefing.

As such, he pledged to "open for business safely and sustainably", while supporting business growth, job creation and market access.

While he acknowledged that "some are still hoping for a quick recovery, and a return to the familiarity of the old normal", Mr Chan said: "The painful truth is this: We are not returning to a pre-Covid-19 world."