SINGAPORE (July 14): Following the release of advance gross domestic product (GDP) estimates by the Ministry of Trade and Industry on Tuesday morning, economists are buoyant on Singapore’s economic outlook, despite the dismal numbers reported in 2Q20.

See: Singapore 2Q20 GDP slumps by 12.6% according to flash data: MTI

The numbers are largely attributed to the circuit breaker measures that saw the suspension of non-essential services and closure of most offices from April to June.

OCBC Bank has maintained its GDP growth forecast for FY20 at -5.5%, while UOB estimates the economy to decline at an average of 4%. Maybank Kim Eng has upgraded its forecast to -6% from -7% for the year, matching Oxford Economics’ forecast. Fitch Solutions is the most upbeat, maintaining its estimated real GDP growth of -2.8% for 2020.

MTI’s revised GDP growth range outlook of between -4-7% marks the deepest recession Singapore has encountered since its independence.

See also: Singapore economy faces worst recession since independence with growth expected to fall between -7% and -4% : MTI

OCBC Bank’s head of research and strategy Selena Ling believes the worst is “likely over” even with confirmation that the Singapore economy has entered into a recession.

“With 1H growth already contracting 6.5% yoy, 3Q may see some stabilization from the 2Q growth trough as the Singapore economy re-opens,” she says.

While 3Q is likely to continue to report a contraction y-o-y, GDP growth for FY2020 is likely to remain in recession with the bank’s forecast of -5.5% y-o-y.

Ling also believes that the true test of recovery lies within the private consumption and services sector.

In the near-term, the return of domestic dining-in in restaurants and the re-opening of retail shops in Phase 2 may fare better in June. The travel sector, with ongoing restrictions, is unlikely to improve “significantly” soon.

However, even if economies are gradually opening up, Ling warns that retrenchment and unemployment rates are likely to continue climbing on the back of “tepid” conditions in 2H20.

“External cues may be important out from here, especially with the upcoming China’s 2Q20 GDP growth print due on Thursday since China is deemed the first-in and first-out of the Covid-19 crisis,” she says.

“Any downside surprises due to the mini outbreak in Beijing may lend a cautious tone for Asia’s expected 2H recovery path ahead,” she adds.

UOB economist Barnabas Gan says he expects Singapore’s GDP to further contract, but “at a more moderate pace” in 2H20, due to the circuit breaker and phase one restrictions that were logged for 2Q20’s numbers.

See also: Double-digit contraction expected for Singapore's 2Q20 GDP: UOB

Gan cites the gradual recovery to the re-opening of businesses in phases two and three, as well as the opening up of tourist attractions from July. Pharmaceutical production and exports, which is the best-performing cluster year-to-date, are expected to continue to bolster Singapore’s overall manufacturing and trade environment.

“Still, COVID-19-led concerns, coupled with brewing geopolitical and trade tensions in the background, are key drags to Singapore’s growth potential in 2020,” he says.

The lower-than-expected GDP data has led to a weaker Singapore dollar, where it tipped past the 1.39 mark per USD.

“The SGD NEER, according to our models, remains below the mid-point, a likely behaviour given the deterioration in Singapore’s negative output gap in 2Q20,” Gan notes.

Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye say they expect smaller y-o-y GDP contractions in 3Q and 4Q from -4 to -7% moving forward.

Chua and Lee are projecting a U-shaped recovery, and have raised their 2021 GDP forecast to +4% from +3.5% previously, as the economy recovers from 2Q20.

The analysts also foresee Singapore’s GDP returning to pre-pandemic levels only in 2022, and expect the Monetary Authority of Singapore (MAS) to maintain the zero appreciation of the SG$NEER at the upcoming October meeting.

“Recovery in the second half will be dampened by the slow reopening, border controls, strict social distancing rules and foreign worker shortages,” they say.

On the other hand, Oxford Economics economist Sung Eun Jung says the economy is “likely to see a W-shaped recovery”, and that Tuesday’s numbers were “better than expected”.

“We expect growth to have bottomed out in 2Q with some high frequency data hinting at a growth recovery. However, this assumes that there isn’t another massive coronavirus outbreak, domestically or globally. Assuming this downside scenario doesn’t materialise, our baseline GDP growth forecast of -6% this year may warrant an upward revision,” he adds.

See also: 2Q20 GDP data likely to emerge on upside despite uncertainties: Oxford Economics

The team at Fitch Solutions, too, believe the economy has bottomed out in 2Q20, and the continued reopening of the economy will help drive domestic and external demand for the rest of the year.

Highlighting the positive contribution of 0.5 percentage points from the manufacturing sector, the team says the economy likely has not done as badly as the advance estimates indicate. In fact, the team expects the final GDP figures for the quarter to be revised upward.

“Advance estimates are based on the first two months of the quarter, and we believe that with the partial reopening in June, the economy would have done better than in April and May,” it says.

The way the team sees it, the worst is likely over for the Singapore economy, and private consumption is likely to increase. However, this episode of euphoria is unlikely to last and as long as economic fundamentals remain weak, any sustained recovery in private consumption will remain limited.

Expecting a phased re-opening of local and global economies, the team says even if external demand does not pick up to a sufficient extent to drive exports, falling imports will help maintain the overall trade surplus and support headline real GDP growth.

“Finally, the government’s stimulus package which amounts to nearly 20% of 2019 GDP, will continue to cushion the slowdown and we maintain our view that if necessary, the government has the resources and the will to do more,” it adds.