Will S$92b do it? Jobs may be best gauge of efficacy of support moves

Unemployment rates, job losses compared to previous crises may be a good proxy; GDP not a good measure given Singapore's open economy

Singapore

THE effectiveness of government support in the Covid-19 crisis might better be assessed - if at all - in terms of its effect on unemployment, more than its mitigation against the recession, said analysts, who noted that efforts have explicitly been focused on jobs.

With a hefty S$92.9 billion in support for firms, workers, and households, "it's a very legitimate question to ask whether we are getting a decent bang for the whopping buck that the government is pouring in," said political analyst Eugene Tan, an associate professor of law at the Singapore Management University.

An obvious indicator might seem to be gross domestic product (GDP) growth, or rather, contraction. Official forecasts suggest the largest recession since independence, of -7 per cent to -4 per cent this year.

But fiscal policy can only go so far for a small open economy in a massive global crisis. "Much really depends on the external environment and economic conditions," said DBS economist Irvin Seah. "It's a little bit beyond the scope of the policies."

Perhaps doing worse than the mid-point of the forecast range could be taken as a sign that fiscal support "fell short of expectations", he said.

"Current GDP figures are not the best way to assess the impact of fiscal stimulus," said HSBC Global Research chief Asean economist Joseph Incalcaterra.

But the sequential trend in GDP, into 2021, could reflect the efficacy of stimulus. For example, labour market support should allow consumer spending to normalise quicker than would otherwise be the case.

Another issue with looking at GDP is that the counterfactual is unknown. The question of whether a deeper recession was avoided will remain hypothetical, said OCBC Bank chief economist Selena Ling.

She suggested that a better gauge might be the shape of the recovery post-pandemic, and more granular indicators at the sectoral and firm level.

However, not all negative measures of business performance might be bad in a broader sense, said Singapore University of Social Sciences associate professor of economics Walter Theseira.

"For example, in business restructuring, we may accept that some inefficient businesses close down if that generates more economic value overall as the survivors are much stronger," he said.

He suggested looking at people-related factors, instead, including incomes, distribution of income and wealth, employment, and psychological and health well-being.

With policy focusing strongly on jobs, unemployment rates and job losses compared to previous crises may be a good proxy, said Ms Ling.

With DBS forecasting 45,600 retrenchments this year, Mr Seah said: "If the final figure is lower than that, then I think we have to a large extent succeeded in buffering the impact."

ING Asia economist Prakash Sakpal sees both growth and the jobless rate as relevant.

For the latter, 3 per cent might be "a tolerable level", he said, noting its high of 3.3 per cent in the global financial crisis (GFC). "Anything far above that would be bad, given strong efforts to save jobs."

Here, too, Dr Theseira argued that not all unemployment is equal. Job losses in positions that are easily replaceable may be a human tragedy, but not a serious economic blow. The danger is if firms lose "productive capability that is hard to re-create".

With S$52 billion to be drawn from past reserves, the Covid-19 support raises a separate question about the government's fiscal approach.

The only previous draw was during the GFC in 2009, with approval given for S$4.9 billion. An eventual sum of S$4 billion was used, and this was returned in full to the reserves in 2011.

But Singapore avoided a full-year recession in the GFC, in stark contrast to this historic contraction, said Mr Seah. He does not expect the much larger S$52 billion sum to be paid back, even if the government still aims for balanced budgets and not deficits.

Mr Tan hopes the precedent of returning sums to the reserves is maintained if possible, but finds it "unrealistic" to expect the full S$52 billion to be returned. "I would see the reserves spending as an investment if they are put to good use and are relatively effective in achieving the intended outcomes. I will regard them as losses if the measures were poorly conceived and did not work well."

For Dr Theseira, the true question is: "Has our Covid-19 experience taught us that our reserves are sufficient? Or are they too much? Or too little?" This, he added, will determine whether and how to re-accumulate reserves - for instance, whether the Net Investment Returns Contribution needs to be adjusted to change the rate of reserves accumulation.

READ MORE: National Jobs Council could help drive a rethink on Singapore's skills and labour profile

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