Citigroup Inc. forecasted a larger economic contraction for Singapore as it cautioned that the country will sink deeper into recession in 2020 amid the tightened and extended partial lockdown measures.
On Tuesday (22 April), economists Wei Zheng Kit and Kai Wei Ang reported that the country’s economy will shrink by 8.5 per cent this year, lower than the previous estimate of 6 per cent. They revised the figures following the extension of the “circuit breaker” measures until 1 June as the Government “decisively” seeks to lower COVID-19 cases in the nation.
The two economists stated, “The circuit breaker would cause close to 25%-30% of GDP to come to a standstill, with every month of extension further reducing 2020 GDP by 2% to 2.5%.”
“The technical rebound after the lifting of the circuit breaker on 1st Jun will be capped by continued social distancing and only gradual recovery in exports,” they added.
Initially, Singapore was praised as the model country for the management of the COVID-19 crisis, but recently the number of cases spiked drastically in densely-packed dormitories housing foreign workers. The country now has the most number of cases in Southeast Asia.
Most construction activities will be forced to a standstill and more services will be suspended or restricted following the steps announced on Tuesday, economists cautioned, as the economic outlook continues to harbour downside risks.
The likelihood that the Monetary Authority of Singapore (MAS) will again resort to expansionary monetary policy by lowering the currency’s range at its October meeting will increase in the event that GDP forecasts for the year are downgraded, they added.
Earlier in March, MAS devalued the currency as a policy move to allow the weaker exchange rate to stimulate the export-dependent economy.
An additional fiscal stimulus of S$3.8 billion has also been introduced on Tuesday (22 April) by the Government. As of now, the overall total stimulus pumped into the economy is more than S$60 billion.