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Recession possible amid Covid-19 outbreak, says PM Lee

Economists say recovery after Q1 still a possibility, but don't rule out technical recession if epidemic drags on

PM Lee visiting Changi Airport on Friday. He says the greater linkages today between economies and China's larger role will weigh on the situation.


WITH the Covid-19 outbreak taking an economic toll, Prime Minister Lee Hsien Loong is not ruling out the possibility of a recession here. Asked about its likelihood, he said: "I cannot say whether we will have a recession or not. It is possible, but definitely our economy will take a hit."

The impact on the region "will be significant, at least in the next couple of quarters", given greater linkages between economies and China's larger role now compared to the Sars crisis, he told media on Friday during a visit to Changi Airport.

Economists said the hope is still for a recovery after the first quarter, though they do not rule out a technical recession, which refers to two consecutive quarter-on-quarter contractions.

"For the moment we are all hopeful that it is just a sharp fall in Q1," said CIMB Private Banking economist Song Seng Wun. But a technical recession, or even a full-year contraction, is possible if the outbreak is not contained in the first half of the year, and the impact broadens to all key goods and services industries, he added.

Maybank Kim Eng senior economist Chua Hak Bin said: "Markets are pricing in a one-quarter contraction and a V-shaped recovery, but there is a non-negligible risk of a two-quarter contraction and more of a U-shaped recovery."

After new infections or deaths fall to zero, governments in China and elsewhere may err on the side of caution and keep border controls in place for a long while, which would worsen the growth impact, he added.

Noting that Singapore's Sars experienced lasted from the first cases in March to the all-clear in July, PM Lee said he expects the conclusion to this outbreak "not to be so fast this time".

But Singapore remains open for business, he said. "Because even if we completely shut down Singapore today, it does not mean that all the cases will disappear... So we have to keep on, keep Singapore going and we have to keep making a living."

Separately, Minister for Trade and Industry Chan Chun Sing said it is "a bit too early to tell" what the impact on full-year growth will be, "partly because we do not know how long this situation will continue to persist".

While the Budget package for businesses will include measures to help with cash flow, firms themselves can play their part by ensuring that payments to partners are made on time, he told media after a two-hour closed-door discussion with members of the Singapore Business Federation (SBF).

"Larger contractors must not withhold payment from the smaller contractors, otherwise it will impact the entire ecosystem negatively," he said.

Furniture firm Koda's executive director Ernie Koh, a presidential adviser of the Singapore Furniture Industries Council (SFIC), said firms with strong balance sheets can financially help suppliers or customers with timely payment, contract extensions, or cash advances.

Apart from cash flow, Mr Chan and the business leaders discussed the importance of diversifying supply chains and foreign labour sources.

Besides Budget measures to stabilise the situation, "we must also have measures to help businesses position strongly for recovery", he added.

After Sars was contained, the rebound was significant, recalled Singapore National Employers Federation vice-president Alexander C Melchers, general manager of the Singapore branch of C. Melchers Gmbh & Co. "I think the year 2003 was almost closed on-budget for businesses except for airlines and hotels."

Back then, his retail firm's rebound was almost 100 per cent in six months, he said. "I'm telling all my staff and the people that I work with, get ready for the upturn."

Noting that the head of the International Monetary Fund expects China to have a V-shaped recovery, SBF chairman S S Teo said the current situation is a chance for firms to regroup, transform, and diversify, while retaining their workers to be ready when recovery comes.

On the labour front, the government could help by waiving foreign worker levies for now, and allowing flexibility, he said.

For instance, foreign workers must return to their home country before they can be hired by a different employer here.

But amid this labour crunch, with restrictions on workers from China, the government could look at waiving this condition for existing workers in Singapore, from China or elsewhere.

With Work Permits being restricted to workers from certain countries, firms would also like to be able to hire from non-traditional source countries such as Myanmar, said Mr Teo.

"I hope along the way, if there's more help needed, the government can still have off-Budget measures to help businesses," he added.

The government could also channel resources to trade associations and chambers (TACs) to help their members, said Mr Koh. SFIC itself is considering a member assistance scheme, and working on a package for crisis management and recovery.

The Singapore Manufacturing Federation (SMF) is speaking to members with short-term cash flow problems to see what can be done, said SMF deputy president Bicky Bhangu, who is also Rolls-Royce Singapore president for South-east Asia, Pacific, and South Korea. He urged troubled firms to "speak quickly" to TACs and business partners.

"We need to have this open, transparent conversation so we can actually plan for sustainability."

To deal with the fall in tourist arrivals, Resorts World Sentosa staff are taking annual leave early. The integrated resort's chief executive officer, Tan Hee Teck, said: "I think the main thing today is that we need the entire society, Singaporeans especially, to remain calm. Business as usual."