Covid-19 impact pushes Singapore's 2020 GDP forecast into negative turf

Singapore

SINGAPORE's official growth forecast has hit negative territory for the first time in nearly a decade. This comes as the Republic braces itself for what is likely the worst economic contraction since independence.

The Ministry of Trade and Industry (MTI) on Thursday further downgraded Singapore's official growth forecast to between -4 per cent and -1 per cent, from the -0.5 per cent to 1.5 per cent range posted in February.

"Since then, the Covid-19 outbreak has escalated and led to a significant deterioration in the economic situation both externally and domestically," MTI said on Thursday morning. The wider forecast accounts for heightened uncertainties in the global economy, it added.

The last time Singapore saw negative full-year gross domestric product (GDP) growth was in 2001 during the Internet dotcom bust, where a 1.1 per cent contraction was recorded. The Republic also saw a 2.2 per cent GDP contraction in 1998 during the Asian financial crisis.

Before that, there was 3.2 per cent contraction in 1964, when racial riots occurred.

The revised 2020 GDP growth forecast also saw economists slashing their projections.

On Thursday, DBS cut forecast to -2.8 per cent from -0.5 per cent previously, while UOB downgraded its forecast to -2.5 per cent from +0.5 per cent.

OCBC revised its projection to -3 per cent from a prior -1 per cent to neutral forecast and Mizuho Bank downgraded its forecast to -1.9 per cent from -0.2 per cent previously.

Selena Ling, OCBC's head of treasury research and strategy, said Singapore's Q1 2020 GDP growth estimate is like "the canary in the mineshaft" - warning of further economic pain to come for other Asian economies.

The economy contracted 2.2 per cent year-on-year in the first quarter of 2020, according to advanced estimates on Thursday.

On a quarter-on-quarter seasonally adjusted annualised basis, the economy shrank 10.6 per cent, pulling back sharply from 0.6 per cent growth the previous quarter.

The projected 2.2 per cent contraction marks the worst GDP year-on-year contraction in over a decade since Q1 2009 and the largest quarter-on-quarter slippage since Q3 2010.

DBS senior economist Irvin Seah called the latest set of figures "the worst year-on-year decline since the global financial crisis" and also confirms fears that a recession is "inevitable".

"In fact, this could well be the worst recession ever on record for Singapore," Mr Seah said.

MTI reported a contraction in three key sectors: manufacturing, services and construction.

Singapore's services-producing industries shrank 3.1 per cent year-on-year from 1.5 per cent growth in the previous quarter, due to a sharp decline in tourist arrivals and a fall in domestic consumption. The services sector accounts for two-thirds of GDP employment. If it falls, the economy follows, Mr Seah said.

The manufacturing sector contracted 0.5 per cent year-on-year, moderating from the 2.3 per cent contraction in the previous quarter.

The sector was weighed down by output declines in the electronics and chemicals clusters, which more than offset output expansion in the biomedical manufacturing and precision engineering clusters.

The construction sector shrank 4.3 per cent year-on-year, reversing from 4.3 per cent growth in the previous quarter.

The sector was weighed down by a decline in private-sector construction activities, supply chain disruptions and delays in the return of foreign workers as a result of lockdowns and travel restrictions by other countries in relation to the Covid-19 outbreak.