Singapore heads for deeper recession: 2020 growth forecast cut to between -7 and -4% on Covid-19 impact

The economy will shrink by 7 to 4 per cent, worse than the 4 to 1 per cent contraction earlier predicted, said the Ministry of Trade and Industry (MTI) on Tuesday (May 26).  This would be Singapore's worst-ever recession since independence in 1965.

MTI said that there were significant uncertainties in the global economy, with a risk that subsequent waves of infections in major economies such as the United States and euro zone could further disrupt economic activity. In particular, if infections start to rise and strict measures such as lockdowns and movement restrictions are reimposed, the downturn in these economies could be more severe and prolonged than expected.

Also, a growing perception of diminished ability to use fiscal and monetary stimulus in many major economies could damage confidence in authorities' ability to respond to shocks, undermining risk appetite and driving further financial market volatility, with negative spillovers for the broader global economy, it said.

"Against this backdrop, the outlook for the Singapore economy has weakened further since March," MTI said in a press release.

Mr Gabriel Lim, MTI’s Permanent Secretary, said that outward-oriented sectors such as manufacturing, wholesale trade and transportation and storage will be adversely affected by the sharper-than-expected slowdown in many of Singapore’s key markets, as well as more prolonged supply chain disruptions.

The circuit breaker measures implemented to curb the spread of Covid-19 in Singapore, which include the closure of most workplace premises, have further dampened domestic economic activity, along with domestic consumption, he said at a virtual press conference.

Sectors like construction and marine and offshore engineering have been severely affected by manpower shortages due to the outbreak of infections among foreign workers, especially those living in dormitories, he noted.

MTI said a gradual recovery is expected to start taking shape only in the second half of the year.

Ms Selena Ling, head of treasury research  and strategy at OCBC Bank, said the downward revision of the official 2020 growth forecast was anticipated and implies a significant deterioration in the second-quarter growth momentum due to the circuit breaker measures, as well as a weak recovery trajectory in the second half depending on the global and domestic Covid-19 recovery process.

“Market focus will be on the fourth Budget this afternoon where fiscal policy will do the heavy lifting, with another tap on the past reserves already receiving the President’s in-principle approval. The policy priorities are to mitigate the expected softening in the domestic labour market,” she said.

Singapore Deputy Prime Minister Heng Swee Keat is scheduled to deliver a ministerial statement on the fourth round of Covid-19 support measures at 3.30pm on Tuesday.

MTI on Tuesday also said the economy contracted by 0.7 per cent year on year in the first quarter, a reversal from the 1.0 per cent growth in the previous quarter but better than the 2.2 per cent drop earlier estimated.

That was made possible by the “pockets of resilience” in the Singapore economy, it said.

Within the manufacturing sector, biomedical manufacturing is expected to continue to expand, supported by the production of pharmaceutical and biological products. Among services, the information and communications sector is also projected to grow given firms’ resilient demand for IT and digital solutions.

Ms Ling said the upward revision for the first quarter GDP was largely driven by the March manufacturing data.

“But the first quarter is water under the bridge,” she said.

On a quarter-on-quarter seasonally adjusted annualised basis, the economy shrank by 4.7 per cent, a pullback from the 0.6 per cent expansion in the fourth quarter of last year, MTI data showed.

Separately on Tuesday, trade promotion agency Enterprise Singapore (ESG) cut again its outlook for non-oil domestic exports (Nodx) this year as the pandemic continues to put a near-freeze on economic activities. Nodx is now forecast to shrink by 1 to 4 per cent this year, down from its earlier projection of a -0.5 to +1.5 per cent growth made in February.

Nodx posted a 5.8 per cent year-on-year increase in the first three months of the year, thanks largely to a low base a year ago.