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Singapore recession forecast for 2020 worsens to between -4% and -7%
THE Singapore economy is staring at a much deeper recession than earlier forecast, with gross domestic product (GDP) projected to shrink by between 7 per cent and 4 per cent this year.
The official outlook was lowered on Tuesday, from previous estimates of a contraction of between 1 per cent and 4 per cent, as the fallout from the Covid-19 pandemic continued.
The Ministry of Trade and Industry (MTI) attributed the downgrade to both a weaker external demand outlook for Singapore, and the likely impact of the two-month so-called “circuit breaker” to curb the spread of the virus.
This is not the gloomiest forecast that the MTI has ever offered - it predicted a contraction of as deep as 9 per cent in 2009, during the global financial crisis - but, if borne out, would mark Singapore’s worst recession since independence.
“Notwithstanding the downgrade, there continues to be a significant degree of uncertainty over the length and severity of the Covid-19 outbreak, as well as the trajectory of the economic recovery, in both the global and Singapore economies,” the MTI added.
Meanwhile, Singapore’s first-quarter GDP decline was revised to a smaller contraction of 0.7 per cent, from an earlier flash estimate of 2.2 per cent contraction, with the help of a better-than-expected showing in manufacturing than advance data had indicated.
Still, the final print offered cold comfort. Further deterioration is expected on factors such as a “circuit breaker” shutdown in April and May to contain the spread of the deadly coronavirus.
OCBC Bank chief economist Selena Ling, who has forecast a recession of 6 per cent, said that the downgrade “implies a significant deterioration in the second-quarter momentum, due to the 'circuit-breaker' period as well as a weak recovery trajectory”.
“Risks still dominate for the second-half recovery path, even with the phased reopenings after the 'circuit-breaker' period ends on June 1.”
Separately, Irvin Seah, senior economist at DBS, noted that “the previous lower limit of -4 per cent was no longer tenable”, given an extension of the "circuit breaker" in April, “as well as the cautious approach adopted in the easing-off phase”.
“Despite the better-than-expected showing in the first quarter, the full impact of the pandemic will be felt only in the second quarter,” added Mr Seah, who forecasts a 5.7 per cent full-year contraction.
“Significantly weaker global demand, labour shortage in the construction sector, supply chain disruptions and restrictive measures imposed during the 'circuit breaker' will inflict a severe blow to the economy.”
Measures taken under the circuit breaker “have further dampened domestic economic activity, along with domestic consumption”, the MTI said.
Gabriel Lim, permanent secretary for trade and industry, told a morning briefing that Singapore’s economic performance in the second half “will depend in part on whether we are able to continue to contain the domestic outbreak” after the "circuit breaker".
The MTI highlighted both the impact on consumer-facing segments such as retail and food services, as well as a broad-based suffering from reduced labour capacity and lower demand.
Otherwise, external-facing industries such as manufacturing, wholesale trade and transport and storage are expected to take a hit from supply chain disruptions and slowdowns in key markets, while sectors like construction and marine and offshore engineering “have been severely affected by manpower shortages” from coronavirus outbreaks in foreign worker communities.
“In March, when we last met, MTI highlighted that the escalation of the Covid-19 outbreak worldwide had led to a significant deterioration in the external economic environment,” said Mr Lim. “Since then, the disruptions to economic activity in major economies around the world have been more severe than expected.”
Mr Lim added that “we can’t control” how the global economy evolves, “although we’ll do our best to make a living under whichever circumstances come our way”.
But the MTI hailed the information and communications industry, and biomedical production of pharmaceuticals and biological products, as “pockets of resilience in the Singapore economy”.
The first-quarter GDP’s year-on-year slide reversed its growth of 1 per cent in the quarter before. On a seasonally adjusted, quarterly basis, the economy lost 4.7 per cent.
“The decline in GDP was primarily due to contractions in the wholesale and retail trade, transportation and storage and accommodation and food services sectors,” said Mr Lim.
Still, manufacturing posted a surprise expansion of 6.6 per cent year on year, against the mild contraction suggested by flash data, as biomedical manufacturing saw a surge in active pharmaceutical ingredients and biological products output.
Production growth in precision engineering and transport engineering also offset falls in electronics, general manufacturing and chemicals.
The services sector lost 2.4 per cent on the year before. Despite limited bright spots in information and communications and finance and insurance, the sector’s performance was marred by significant downturns - including in air transport, which reflected “a steep decline in air passengers handled at Changi Airport due to the global travel restrictions”.
Meanwhile, construction was lower by 4 per cent, on a slump in private-sector activity.