CB rollback begins soon, but Singapore economy faces long road to recovery

Singapore

SINGAPORE is still on track for its worst recession on record, private economists said on Wednesday, after plans were unveiled to exit a two-month quasi-lockdown on June 2.

With the novel coronavirus still prevalent, the three-stage roadmap to reboot the economy has not moved the needle on analysts' earlier projections of a deep contraction.

Given its pace - which depends on how fast the virus can be brought under control - the months-long reopening will not be the shot in the arm that companies hoped for, they noted.

"The recovery growth momentum may be muted till the fourth quarter," OCBC Bank chief economist Selena Ling told the press in an e-mail.

"This could mean a sharp drop-off in the first half of 2020, but a more gradual sloped recovery from the second half. So somewhere between a V- and U-shaped recovery?"

Barclays economist Brian Tan added: "The government's reopening plans are consistent with our view that any recovery in the second half will likely be gradual and unlikely to fully close the negative output gap."

Citi's Kit Wei Zheng and Ang Kai Wei also wrote in a report that the recovery "could be capped by continued modest workplace restrictions".

Indeed, Minister for Trade and Industry Chan Chun Sing reiterated, in an interview with Bloomberg on Wednesday, that there are still many downside risks for the economy even as export data has largely held up.

Singapore will stay in Phase One of its reopening for at least four weeks - or two incubation cycles - before it enters the second phase, which may stretch three months or longer.

It could be close to the end of the year before a "new normal" - where social activities can resume and high-contact businesses like spas - is reached.

While the negative impact still would be more moderate than during the full circuit breaker in April and May, Mr Tan suggested that every month spent in Phase One could pull down full-year economic growth by 1 to 1.5 percentage points.

Meanwhile, Citi estimated that sectors making up between 12 and 15 per cent of gross domestic product will stay closed in Phase One, and those making up 6 to 8 per cent will still be out of commission in Phase Two. There will be an uneven impact across the economy, said United Overseas Bank economist Barnabas Gan.

Manufacturers essential to the economy, such as semiconductors and pharmaceuticals, never shut; and the sector's remaining factories are set to fire up their engines again soon.

But Mr Gan observed that some of the tighter safety restrictions will continue in Phase One, "especially in the retail sector, which suggests sustained headwinds to Singapore's labour and consumer markets". He expects that retailers accounting for only about 20 to 30 per cent of sales can open in Phase One, such as supermarkets. Meanwhile, "tourism-related industries are likely to stay in the doldrums given little clarity on the re-opening of Singapore's borders".

On the bright side, Ms Ling noted that the biomedical manufacturing cluster, especially pharmaceuticals, have rosy prospects.

The financial services and logistics industries, and infocomm services such as cybersecurity and e-commerce, will also be in demand for the rest of the year, she added.

Ministry of Trade and Industry economists now forecast a full-year recession of 1 to 4 per cent. But private watchers across the board have predicted a far deeper decline. They expect a downgrade to the outlook next Tuesday, when updated official economic estimates are released.

Deputy Prime Minister Heng Swee Keat will also announce more fiscal support measures in Parliament then.