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DBS says recession 'imminent' for Singapore, slashes GDP growth forecast

DBS Group Research has joined a growing number of economy watchers warning of a full-year recession in Singapore.

It is also predicting that the Republic’s small and open economy will likely be in a technical recession by June.

In a report published on Thursday, the research team described a recession as “imminent” and “inevitable”, and lowered its full-year gross domestic product (GDP) growth forecast for 2020 from a February estimate of 0.9 per cent to negative 0.5 per cent.

It warned that this outlook could sink further if the novel coronavirus outbreak worsens.

DBS said new and unprecedented travel bans will hit tourism-related industries such as restaurants and retail far harder than originally estimated, as the countries issuing these bans accounted for nearly 70 per cent of Singapore’s tourist arrivals last year.

DBS economist Irvin Seah wrote in the report that chances of a technical recession occurring within the first half of this year were “almost a given”, with year-on-year contraction of up to two percentage points expected. 

A technical recession is defined as two consecutive quarters of sequential decline in GDP.

Negative growth is predicted to continue into the third quarter of this year, before an improvement at the end of the year. 

The report's negative growth estimate means 2020 could be the worst economic performance Singapore has had since the 2001 dotcom bust, which saw negative 1.1 per cent GDP growth.

“Putting into perspective, this will be a lot deeper than Sars, and more painful than the Global Financial Crisis,” Mr Seah wrote, acknowledging that government measures had already mitigated the pandemic’s economic impact.

Full-year inflation was estimated at 0.4 per cent, compared to 0.6 per cent last year.

Apart from GDP, DBS predicted 24,500 full-year annual retrenchments as a result of the worsening economy - higher than the 23,430 retrenchments in the 2009 financial crisis.

The report added that a second stimulus package of between S$14 billion and S$16 billion - or 2.9 per cent of GDP - was likely. Among the new measures it anticipated were an immediate one-off cash grant to micro and small enterprises, a one-month waiver of the Foreign Worker Levy for companies affected by new measures (such as Malaysia’s movement control order) and personal income tax rebates for all taxpayers.

Separately, Deutsche Bank Research published a report on Wednesday predicting a severe global recession in the first half of the year, with quarterly declines in GDP growth expected to “substantially exceed anything previously recorded, going back to at least World War II”.

It said early evidence of the pandemic’s negative economic impact on China was far beyond its initial projections. 

However, the research team cautioned investors about the uncertainty of the forecast, citing a lack of historic anchors and an unpredictable global situation.