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Singapore's current account surplus to tumble in 2020 due to Covid-19: Fitch Solutions

FITCH Solutions has forecasted Singapore's 2020 current account balance to shrink substantially due to impact from the coronavirus pandemic.

It expects a surplus of 12.9 per cent of gross domestic product (GDP) in 2020, down from 17.3 per cent of GDP in 2019, Fitch said in a report published on Wednesday.

The decline will be in part due to a lower goods trade surplus, which results from severe global economic disruptions caused by the Covid-19 pandemic.

The goods trade balance has historically been the largest positive contributor to the current account balance.

Fitch noted that the goods trade balance fell to S$1.9 billion in February, the lowest value in absolute terms since the global financial crisis.

It has consequently revised its 2020 forecast for Singapore exports and imports.

It expects exports to contract 10 per cent versus a previous forecast of 1.5 per cent growth; imports will contract 8.5 per cent versus a 2 per cent growth forecasted previously.

Fitch said that while external demand is likely to crash, imports might fall to a smaller degree as there is a continued need to maintain food stocks and medical supplies even as prices are likely to rise amid mounting supply chain shocks.

Fitch does expect the weakening Singapore dollar to limit the deterioration of Singapore's trade balance over the coming months.

Meanwhile, Fitch expects the service sector to post a small surplus. This is due to muted transport and travel industries not posting deficits like they have done in previous years.

Net exports of finance and insurance services steadily climbed from 0.2 per cent of GDP in 2000 to 6.2 per cent of GDP at the end of 2019.

Fitch expects the financial sector to continue providing support to the service sector's balance in 2020.

The overall income deficit is likely to remain steady since both payments and receipts are likely to decrease as the global economy sours, Fitch added.