Economic growth forecast for Singapore has been downgraded by the Ministry of Trade and Industry (MTI) on Monday (17 Feb) to within the range of -0.5 per cent and 1.5 per cent. This is indicative of a possible recession as the economic outlook weakened in the wake of the Covid-19 outbreak.
According to MTI, growth is forecasted to be sit at about 0.5 per cent that is the mid-point of the forecast. Last year November, the forecast by MTI was within the range of 0.5 per cent and 2.5 per cent for 2020.
The permanent secretary for trade and industry, Gabriel Lim noted that 2001 was the year of Singapore’s last recession during which the full year GDP contracted by around 1 per cent. At this juncture in 2020, GDP is expected to sit at about 0.5 per cent, Mr Lim noted about MTI’s baseline view.
Mr Lim spoke at a media briefing on Monday (17 Feb): “As the Covid-19 situation is still evolving, there is a significant degree of uncertainty over the length and severity of the outbreak, and hence its overall impact”.
During the severe acute respiratory syndrome (Sars) outbreak in 2003, the economy contracted 0.3 per cent in the Q2 of 2003. However, from Q3 onwards, growth recovered to a 5.3 per cent expansion, capping 2003 with a positive 4.5 per cent growth, Mr Lim added.
According to the deputy managing director of the Monetary Authority of Singapore (MAS), Edward Robinson, MAS is ready to adjust its monetary policy to accommodate the economic changes caused by the Covid-19 outbreak. Mr Robinson reiterated the stance that MAS announced on 5 Feb that there is enough adjustment room in the current policy band to allow for the easing of the Singapore dollar nominal effective exchange rate (S$NEER) in adjustment with the contracting economic conditions.
The November forecast for 2020 made by MTI was predicated on the recovery in the global electronic market as well as the recovery in global growth. MTI commented that “Since then, the outbreak of the coronavirus disease 2019 (Covid-19) has affected China, Singapore and many countries around the world… The outlook for the Singapore economy has weakened since the last review in November. In particular, the Covid-19 outbreak is expected to affect the Singapore economy through several channels”.
Last year, the economy grew by 0.7 per cent, MTI remarked, which was identical to its advance estimate, but the slowest growth since 2009 which was at 0.1 per cent. For Q4 of last year, growth as at 1.0 per cent year-on-year, which was above the initial estimate of 0-8 per cent but higher than Q3’s 0.7 per cent expansion. The quarter-on-quarter seasonally-adjusted annualised growth showed the economy expanding at a slower rate of 0.6 per cent in comparison to the 2.2 per cent growth in the previous quarter, MTI stated.
MTI also reported that 2020 growth in China and other countries will likely slow down due to the Covid-19 outbreak. China’s growth this year is predicted to be lower than projected as a result of travel restrictions and lockdowns in several main Chinese cities as well as the fall in household consumption.
“Industrial production has also been disrupted because of work stoppages and delays arising from these containment measures…These developments in China will, in turn, have a knock-on impact on regional economies, including the Asean economies, through lower outbound tourism and other import demand from China, as well as disruptions to supply chains,” MTI further added.
It warned that if the epidemic becomes more prolonged and severe, the decline in global consumption could be sharper. As such, the Singapore economy could be affected by the epidemic through a number of channels.
The country’s key final demand markets including China which are hit by the Covid-19 outbreak, could lead a slowdown in outward-oriented sectors such as wholesale trade and manufacturing. In addition to this, prolonged labour shortages and factory closures in China could also land a hit on those sectors due to the supply chain disruptions. In 2019, the manufacturing sector has already taken a toll as it contracted 1.4 per cent year-on-year.
Furthermore, MTI also pointed out that the sharp decline in tourist arrivals, especially from China has strongly affected the aviation industry as well as tourism sector such as cruise operators, hotels and travel agents.
Also, as Singaporeans spend less on dining-out and shopping, domestic consumption may be affected, and firms in food and retail sectors will suffer.
Despite this gloominess, MTI remarked that there are niches of relative strength in the economy such as the construction sector, which is expected to grow steadily since construction demand recovered in 2018. The ICT sector is also predicted to be resilient because enterprise demand for IT solutions remain sustainable.
Amidst all of this, uncertainties yet remain, such as the US-China trade friction. MTI commented that “Notwithstanding the phase one trade deal, US-China trade relations remain uncertain, especially as they turn to more contentious issues in the next phase of their negotiations”. In the Middle East, geopolitical risks remain which could also send shockwaves throughout the commodity and financial markets, with negative effects spilling over to Singapore and the region, MTI added.
As for the Euro zone and the US, growth outlook in 2020 is largely unchanged.
“As the Covid-19 (coronavirus) situation is still evolving, MTI will continue to monitor developments and their impact on the Singapore economy closely,” MTI concluded.