SG gov’t projects a decrease of 5-7% in 2020’s GDP growth – is that too optimistic?

On Tuesday (11 August), the Ministry of Trade and Industry (MTI) announced a downgrading of the country’s growth forecast for 2020 as it predicts a decrease in gross domestic product (GDP) by 5 to 7 per cent. On a quarter to quarter basis, the country’s trade-reliant economy has shrunk by 13.1 per cent due to the impact of the global COVID-19 pandemic.

“The fall in GDP was due to the circuit breaker measures implemented from April 7 to June 1 2020 to slow the spread of Covid-19 in Singapore, as well as weak external demand amidst a global economic downturn caused by the Covid-19 pandemic,” said MTI in a press release.

Some of the sectors that have been badly affected by the pandemic include construction, transportation, storage, accommodation, and food services. The construction sector shrunk by 59.2 percent in the second quarter of 2020 compared to the previous year.

On top of that, global air travel has been decimated as borders closed around the world, which has also impacted transport in general and people transitioned into working from home. MTI noted that the land public transport sector shrunk by 39.2 per cent in the second quarter of 2020.

MTI said in the statement, “Many of Singapore’s key final demand markets saw worse-than-projected economic disruptions in the second quarter, and are also expected to experience a more gradual pace of recovery in the second half of 2020 due to the threat of localised outbreaks and the continued need for restriction measures to contain such outbreaks as they occur.”

If we look at Singapore Airlines (SIA)’s 2020 outlook, the company suffered a staggering 99.6 percent decline in passengers in its second quarter compared to the previous year. This shows just how badly the pandemic has impacted one of the Singapore’s biggest sector.

In a Channel NewsAsia op-ed (12 August), Bendan Sobie of an independent aviation consulting and analysis firm Sobie Aviation, predicted that passenger traffic will likely remain around 1 percent of normal levels until travel bubbles are established beyond essential business travel and once tedious restrictions are lifted as these greatly supress demand.

As such, we can expect international air travel to take much longer to recover than initially predicted, compounded with the fact that a viable vaccine is still far off.

Right now, SIA Group only has 33 planes out of 213 in use for passenger flights. Of these, most are generating more revenue from cargo instead of passengers. About 32 of these passenger aircrafts are being used for cargo-only flights along with seven freighters. It’s the profit from cargo flights that have helped the company offset some of its losses.

Mr Sobie also noted that SIA Group will likely incur an annual loss of roughly S$3 billion for the year ending March 2021. The company recorded its first annual loss in March 2020 this year of S$212 million.

Given that SIA is a bellwether of Singapore’s economy, the highly alarming predictions of the losses it will suffer compounded with the general consensus that air travel will not return to pre-COVID levels anytime soon raises a question over the government’s prediction that the 2020 year on year GDP will only shrink by 5 to 7 percent.

This sounds unbelievably optimistic, especially considering the second quarter GDP plummeting by 42.9 per cent compared to the year before.