Return to Phase 2 HA is a setback to Singapore's recovery

Jul 21, 2021


SINGAPORE'S go back to Phase 2 (Heightened Alert) has actually thrown a spanner in the deal with the short-term outlook of its economy, with watchers concerned that third-quarter development and service self-confidence might be dented by the extended restrictions.

On Tuesday, Singapore's Covid-19 taskforce revealed a restriction on dine-ins once again for four weeks from July 22, while celebrations will be limited to not more than 2 - a throwback to May's Phase 2 (Heightened Alert).

Even then, restrictions were only raised meticulously and in phases after a month. The downturn had already resulted in the Singapore economy contracting by 2.0 percent in the second quarter of 2021, a reversal from the 3.1 percent growth in the preceding quarter.

When a big cluster involving numerous KTV lounges emerged last week, the Republic was on the brink of unwinding its Covid-19 restrictions. The cases have given that infected an increasing variety of markets and food centres islandwide.

A lot of economists appeared bleak about the impact of the current procedures on the economy but stopped short of devaluing their Q3 gdp (GDP) projection.

Asked if another consecutive decrease might be in store for Singapore, DBS senior economist Irvin Seah stated: "It's prematurely to call at this moment in time, however the danger is there."

Explaining the current limitations as "another problem", OCBC chief economist Selena Ling said they provide a downside risk to Q3 "for sure".

She added that it may not be as bad as the "circuit-breaker" duration throughout Q2 last year, since takeaways are still permitted and activities such as business occasions and wedding events can continue.

Guillaume Sachet, partner of advisory at KPMG Singapore, stated the measures could pull Q3's GDP down, but this depends upon how long the restrictions last, and whether they will be extended beyond Aug 18.

Mr Seah stated there is a possibility the steps could last beyond a month, adding: "We've learnt from previous waves of infection that usually, it takes about a month or more to bring the circumstance under control.

" This would absolutely weigh down on growth prospects and the recovery momentum for the F&B (food and drink) and to some level, the retail sector."

Maybank Kim Eng senior economic expert Chua Hak Bin said he was keeping his full-year growth projection of 6.8 percent in the meantime, including: "Manufacturing has actually been driving the recovery and has not been affected by the lockdowns."

Nevertheless, the stop-start nature of the measures is shaking business self-confidence, stated Dr Chua.

Gedeon Lim, a Singaporean economist at The University of Hong Kong, stated: "It needs to be stated that the world has actually been observing us carefully, and though the quick reversal is not entirely due to human error, Singapore's failure to prevent this leakage - rather than a counterfactual where we sustain low cases for a few months from the date of Health Minister Ong Ye Kung's endemic statement - is definitely a point versus us."

Barely a month earlier, Mr Ong and his fellow co-chairs of the multi-ministry taskforce had painted a circumstance of the new normal of living with an endemic Covid-19.

Still, Asst Prof Lim said the only countries where the highly transmissible Delta version has actually not sparked off a resurgence are "basically shut off to the world", which indicates company self-confidence might not take "such a big hit".

Kurt Wee, president of the Association of Small and Medium Enterprises (ASME), thinks the existing climate might set off "a bit more care" when companies make choices on financial investments or dedications in the short-term.

Business chambers are advising the government to upsize support steps for companies affected by the most current limitations.

" The impact of this round of Phase 2 (Heightened Alert) is anticipated to be worse for affected businesses, as they have actually not had the possibility to recover from the previous Phase 2 (Heightened Alert) and last year's 'circuit breaker'," stated Lam Yi Young, president of the Singapore Business Federation.

Mr Lam added that afflicted companies urgently need support with their fixed costs, especially in regards to workforce and rental expenses.

Agreeing, Mr Wee stated: "We certainly would hope that the federal government would consider a very, extremely high level of JSS (Jobs Support Scheme) for all the frontline sectors - probably 75 percent. We probably might be needing a minimum of one month, if not 2 months, of rental rebate for July and August."

Already, the government has actually invested S$ 1.2 billion on support procedures during the "increased alert" period from May to June, with part of it financed by a reallocation of cash formerly budgeted for facilities spending.

While infrastructure jobs would likely still need to continue, the government would have to rebalance priorities, said Mr Sachet.

This means company that work on these tasks may expect some hold-ups to turning points or cutbacks.

Ms Ling said the fiscal effect of more government support might be cumulative, "depending upon whether policymakers can squeeze out more from development task deferments and savings and whether the new restrictions get extended beyond a month".

"A bigger deficit for FY2021 may be affordable to expect if we get more such episodes," said Ms Ling, including that another tap on reserves is also possible.

On Tuesday, financing minister and job force co-chair, Lawrence Wong said the government wants to try its best to cover and fund the most recent assistance package without having to draw on previous reserves.