The Business Times

Quick takes: Singapore returns to Phase 2 (Heightened Alert) amid spike in Covid-19 cases

Tan Nai Lun
Published Wed, Jul 21, 2021 · 04:26 PM

SINGAPORE will revert to Phase 2 (Heightened Alert) as restrictions tighten amid a rise in Covid-19 cases in recent days.

On Tuesday, the city-state's Covid-19 taskforce announced that dining-in at food and beverage (F&B) outlets will once again be banned for four weeks from July 22, while social gatherings will be limited to no more than two persons, down from five currently.

Singapore had been on the verge of relaxing its Covid-19 restrictions when a large cluster involving several KTV lounges emerged last week. The cases have since spread to an increasing number of markets and food centres islandwide, linked through an infection at Jurong Fishery Port.

Here are some quick takes from economists on the Phase 2 (Heightened Alert) arrangements:

Citi Research - vice-president, economics and markets analysis at Citigroup Kit Wei Zheng and senior associate (economics) at Citigroup Ang Kai Wei

"Similar to May and June, the latest restrictions should affect around 8 per cent of the economy, based on the Monetary Authority of Singapore's (MAS) estimates in end-June. However, we suspect that the sequential drag on activity was likely smaller, considering the lower starting point for mobility… Given the slow reopening, retail mobility is currently far lower at 33 percentage points below pre-Covid-19 levels, suggesting that a drop to similar levels of retail mobility in May and June would imply a far smaller eight percentage points decline than in the previous month.


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"Construction… could see a small sequential rebound in Q3, as migrant workers from India are gradually brought in from July… Moreover, the temporary drag on 2021 could be cushioned by unleashed pent-up demand once restrictions are lifted.

"While some temporary disinflation in consumer services on latest restrictions remains possible, May consumer price index data suggests that the overall impact could be smaller than we thought… Risks to inflation remain titled to the upside, in our view. Once restrictions are lifted and pent-up consumer demand is unleashed, cost pressures in consumer services could resume, possibly stronger in segments more dependent on foreign workers."

Barclays - economist Brian Tan

"We reduce our full-year gross domestic product (GDP) growth forecast modestly to 6.5 per cent from 7 per cent. Notably, the earlier imposition of Phase 2 (Heightened Alert) had resulted in Q2 GDP contracting by only a relatively modest 2 per cent on quarter. Another four weeks of Phase 2 (Heightened Alert) in July and August will likely limit the extent of any sequential expansion in Q3 GDP and back load the recovery to Q4.

"Overall, our view remains for the MAS to leave its FX (foreign exchange) policy settings unchanged at its next review… Even if global or domestic economic activity picks up faster than expected, any recovery could be quickly derailed if Covid-19 infections were to surge again, especially given the uncertainty over the efficacy of vaccines against new variants. While high vaccination rates should provide policymakers with greater confidence on the economic outlook, we doubt the MAS will rush to normalise FX policy, especially as underlying inflation pressures remain subdued."

UOB - economist Barnabas Gan

"Phase 2 (Heightened Alert) and Phase 3 (Heightened Alert) had been effective in curbing the spread of Covid-19 in Singapore, a phenomenon we believe will be seen again in Q3.

"While Phase 2 (Heightened Alert) will likely impact the services sector, especially the F&B and retail industries, Singapore's externally-facing sectors should remain relatively unscathed. Importantly, Singapore's industrial production expanded by a strong 30 per cent on year in May 2021, marking the fastest growth pace since November 2010. Moreover, non-oil domestic exports (NODX) also surged 15.9 per cent on year in June 2021, clocking the fastest H1 growth since 2010.

"Furthermore, Singapore has one of the highest vaccination rates across Asia, with 48 per cent of its population fully vaccinated against Covid-19. As such, we keep to our GDP growth outlook of 6.5 per cent for 2021, until further clarity on how Covid-19 evolves in the foreseeable future."

Bofa Securities - Asia and Asean economist Mohamed Faiz Nagutha

"The measures will clearly impact the consumer-facing sectors the most, as was the case in Q2. We see slight downside risk to overall growth, which was lowered to 7.5 per cent just recently, but note that this could be compensated by stronger contributions from the manufacturing and modern services clusters. Furthermore, the size of the likely rebound once the outbreak is under control depends on the government's reopening plans, which are not clear to us. As such, we leave our forecast unchanged at the moment, but emphasise that risks are skewed to the downside, likely around 0.5 percentage point lower.

"Despite the downside risks to growth, we see MAS preferring the Singapore dollar nominal effective exchange rate to stay on the stronger side of the band as core inflation is expected to rise gradually into 2022. In addition, inflation could be temporarily boosted due to the closure of a major fishery port and wet markets... However, given the transitory nature of any such inflation, we continue to see MAS leaving formal policy parameters unchanged in its October meeting but signal the start of policy normalisation by dropping the language on "accommodative stance"."


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