Wuhan virus could score a point - off Singapore's economic growth

Singapore

SINGAPORE'S economy, which is still in a fitful recovery from the trade war, could lose up to one percentage point of growth to the Wuhan virus, economic watchers are now warning.

"The economy is just beginning to show signs of stabilisation from the sharp slowdown last year," Nomura's chief Asean economist, Euben Paracuelles, told The Business Times in an e-mail. But now, "the recovery could be delayed or more subdued".

Selena Ling, chief economist at OCBC Bank, suggested in a note on Thursday that the outbreak may take half a point to one point off baseline estimates, if its impact resembles the severe acute respiratory syndrome (Sars) epidemic of 2003 and the epidemic lasts beyond six months.

Otherwise, Khoon Goh, head of Asia research at ANZ, predicted a 0.4-point hit to first-quarter growth - split between tourism and trade - assuming that visitors from China drop by three-quarters in the next three months, while imports might fall by one-fifth.

Similarly, Moody's Analytics' chief regional economist, Steven Cochrane, told BT that the virus could shave a half-point off thequarter's gross domestic product growth.

Singapore's official forecasters last projected full-year growth of 0.5 per cent to 2.5 per cent.

A more dire pandemic - "where the transmission and mortality rates continue to escalate unabated, especially if the coronavirus mutates" - could push gross domestic product growth below 0.5 per cent, said Ms Ling, as hiring and discretionary spending would suffer on weaker business and consumer sentiment.

Yet, if the virus "turns out to be a one-quarter event", growth could still come in close to Moody's originally forecast 2.5 per cent for 2020, Mr Cochrane added.

Still, Mr Paracuelles noted that the Republic has "sizeable fiscal space" to mitigate the economic risks, including immediate aid to hard-hit sectors.

Indeed, OCBC's model - which assumes travel restrictions and quarantined workers being pulled out of the labour force - excludes "any policy support that could be forthcoming".

Koh Juan Kiat, executive director of the Singapore National Employers Federation, told BT that support measures ought to help with business costs, to save jobs, and also let bosses "use the slack to train their workers and build new capabilities".

He proposed absorbing costs like foreign worker levies and property taxes, while raising funds for training grants and absentee payroll support.

All the same, industry hopes of a reversal in January's foreign worker quota tightening have been viewed by some analysts as a pipe dream.

"I would suspect that any relief on the labour market front may be temporary or limited," Ms Ling told BT, noting that wage subsidies and quota rollbacks "only provide a small lifeline in the interim" without lifting demand.

"The medium-term drivers of an ageing population and digital disruption mean the Singapore economy needs to move up the value chain and be relatively labour-light anyway."

Similarly, DBS senior economist Irvin Seah told BT that any easing of the foreign labour curbs that took effect this month would be "a very drastic U-turn" for policymakers, as well as a "total deviation from their long-term economic strategy" of manpower-lean, high-tech productivity.

While the S$230 million relief package doled out for 2003's Sars crisis included lower foreign worker levies, Mr Seah noted that measures, even then, "were primarily tax-focused and aimed at reducing business costs".

The biggest chunk of the Sars package was S$64 million in property tax rebates for shops, restaurants and hotels, while S$25 million went to diesel tax rebates for taxis, he pointed out.

He predicts such tax breaks this time, too, plus cash grants for small businesses that pay very little in taxes - with potentially higher payouts to businesses in virus-hit industries.

Said Mr Paracuelles: "Temporary measures that can be easily reversible or are one-off would be more appropriate, as these can be calibrated depending on the extent of the outbreak risks."

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