Singapore is sliding into its worst-ever recession in the wake of the coronavirus pandemic, with the gross domestic product (GDP) projected to shrink between 7 per cent and 4 per cent this year.
On Tuesday (26 May), the Ministry of Trade and Industry (MTI) forecasted the country’s economy to decline between 7 per cent and 4 per cent, which is lower than the previous projected range of a contraction between 1 per cent to 4 per cent.
This would mark Singapore’s worst-ever recession since independence in 1965.
MTI attributed the latest downgrade to deterioration in the external demand outlook for Singapore and the expected economic impact from the country’s circuit breaker measures that were imposed to contain the COVID-19 virus.
“Notwithstanding the downgrade, there continues to be a significant degree of uncertainty over the length and severity of the COVID-19 outbreak, as well as the trajectory of the economic recovery, in both the global and Singapore economies,” it stated.
There are significant uncertainties in the global economy, according to the MTI. It cited the risk of subsequent waves of infection in major economies such as the United States and Eurozone that 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,” it elaborated.
MTI added that a growing perception of diminished fiscal and monetary policy space in many major economies could damage confidence in the authorities’ ability to respond to shocks. This will undermine risk appetite and drive further financial market volatility, with negative spillovers for the broader global economy.
“Against this backdrop, the outlook for the Singapore economy has weakened further since March,” it asserted.
The Ministry explained that outward-oriented sectors – such as manufacturing, wholesale trade, transportation, and storage – will be adversely affected by the sharper-than-expected slowdown in many of the country’s key markets. Plus, more prolonged disruptions in the supply chain.
Furthermore, the imposition of the circuit breaker – that has led to many closures of workplace premises in Singapore – has further dampened domestic economic activity and domestic consumption.
“In particular, consumer-facing segments such as retail and food services have been negatively affected by the CB measures. Firms across most sectors, especially those that cannot operate fully from home, have also been working under reduced capacity as a result of the workplace closures and the fall in demand,” MTI noted.
Additionally, sectors like construction and marine and offshore engineering have also been severely affected by manpower shortages. MTI stated that this is due to the outbreak of infections among migrant workers, especially those who are staying in the dormitories.
Singapore’s economic performance in the first quarter this year
Singapore economy contracted by 0.7 per cent on a year-on-year basis in the first quarter, reversing from the previous quarter’s 1.0 per cent growth.
The wholesale and retail trade sector contracted by 5.8 per cent year-on-year as a result of weaker global demand and disruptions in supply chains amid the outbreak. Meanwhile, the retail and trade segment shrank due to a decline in the volume of motor vehicle sales and sales of discretionary goods.
As for the transportation and storage sector, the country sees a contraction of 8.1 per cent year-on-year in the first quarter. Within the sector, the air transport segment shrank on the back of a steep decline in air passengers handled at Changi Airport due to the global travel restrictions.
MTI explained that water and land transport segments contracted amidst sluggish growth in total sea cargo handled and reduced domestic demand for public transport, respectively.
The accommodation and food services sector plunged by 23.8 per cent year-on-year in the first quarter. The accommodation segment shrank due to a plunge in international visitor arrivals and gross lettings at gazetted hotels, while food services segment contracted as food caterers, restaurants, and other eating places recorded a fall in sales, MTI asserted.
The Ministry also pointed out that the construction sector contracted by 4.0 per cent year-on-year due to a fall in private sector construction works.
Speaking in a virtual press conference on Tuesday, MTI’s economic division director Yong Yik Wei noted that construction firms also had to contend with supply disruptions such as raw materials and work permit holders from Malaysia due to the country’s movement control order.
Ms Yong hinted that it will see the “most severe” impact of the COVID-19 pandemic in the second quarter. She cited the halt in activities at most construction sites following the circuit breaker measures that will likely dampen the construction sector’s output significantly.
Singapore will see a gradual recovery in the second half of the year
Nonetheless, MTI assured that there are pockets of resilience in the Singapore economy.
Within the manufacturing sector, the biomedical manufacturing cluster is expected to continue to expand, supported by the production of pharmaceutical and biological products.
The sector expanded by 6.6 per cent year-on-year in the first quarter, reversing the 2.3 per cent contraction in the previous quarter. MTI said that the growth was due to the output expansions in the biomedical manufacturing and precision engineering clusters.
While among the services sectors, it stated that the information and communications sector expanded by 3.5 per cent year-on-year in the first quarter. The sector is projected to grow given firms’ resilient demand for IT and digital solutions.
In fact, the finance and insurance sector expanded by 8.0 per cent year-on-year in the first quarter due to the robust performance of the sector, driven by strong growth in the banking and insurance segments.
Hence, MTI hinted that a gradual recovery is expected to happen in the second half of the year.
However, Permanent Secretary of MTI Gabriel Lim noted that it depends on whether the country is able to contain its domestic outbreak after the circuit breaker ended, as well as how the global economy progresses.