SINGAPORE (July 9): United Overseas Bank (UOB) is calling a 10.5% year-on-year contraction for Singapore’s 2Q20 Gross Domestic Product (GDP).

On a quarterly basis, this translates to a 34.6% contraction, making this the city state’s first technical recession since 1Q09 during the Global Financial Crisis (GFC).

“We believe the contraction in GDP will trough in 2Q20, given the ‘circuit breaker’ and ‘phase one’ restrictions in this period,” explains economist Barnabas Gan in a July 9 Macro note.

“Thereafter, we expect GDP to contract, but at a more moderate pace of -3.7% year-on-year and -1.2% year-on-year in the third and fourth quarters respectively,” he observes.

With a growth rate of -0.7%, Singapore’s economic performance slipped into the red in 1Q20, making this its first contraction since 2Q09. 

The Ministry of Trade and Industry (MTI) subsequently forecast a growth outlook of -4.0% to -7.0% for the year, down from their previous range of -1.0% and -4.0%.

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

“The tone in the MTI’s press release was also downbeat, citing that ‘the disruptions to economic activity in major economies around the world have been more severe than expected’,” Gan observes.

“Significant uncertainties surrounding the risk of a “subsequent waves of infections” in developed economies such as the US and Europe may further disrupt economic activity, while the diminishing fiscal and monetary spaces could hamper the effectiveness of public policy in mitigating the negative effects of COVID-19,” he adds.

Signs of weakness

Singapore’s manufacturing sector is feeling the pressure of these developments. Excluding biomedical manufacturing – which is compared to a very low base – industrial output “remained lacklustre at best,” notes Gan. 

The latest May 2020 data indicated a 7.4% year-on-year contraction in industrial production, a disappointed from the 7.7% growth expected.

Externally, supply chain disruptions and negative demand shocks are weighing Singapore’s exports. Non-oil domestic exports (NODX) dipped 4.5% year-on-year in May, making this the metric’s first contraction in four months. 

Total trade correspondingly fell 25.0%, logging its third straight month of contraction.

On a domestic front, the restrictions has caused households to tighten their purse strings and turn prudent in their spending. As such, retail sales made a historic 52.1% year-on-year drop in May – recording its fastest pace of contraction since the data was made public in 1985.

The relatively weaker external environment may discourage manufacturing momentum in 2Q20, Gan suggests. 

Meanwhile, he anticipates the tourism sector will remain in the doldrums for the rest of the year. Tourism plays an essential role in promoting Singapore’s status as a vibrant global city, which is what makes Singapore a magnet for capital, businesses and talent. Total tourism receipts accounted for 5.4% of nominal GDP in 2019, which was significantly larger than the construction sector’s share of 3.5% in the same period.

In spite of the reopening of tourist attractions on July 1, a sustainable and robust recovery for tourism-related industries hinges on the opening of Singapore’s borders to international visitors, mulls Gan.  Right now, it seems that tourist arrivals may only be allowed through the travel green lanes

Against an austere outlook, Gan expects labour conditions to have worsened in 2Q20. This is in line with Monetary Authority of Singapore’s Suvery on Professional Forecasters which anticipates 2Q20 unemployment to hit 3.5%. For the full-year it is looking at a jobless rate of 3.6%.

See: Singapore's economy expected to dip 5.8% this year : MAS Survey

Bright spots

For now, Gan is counting on pharmaceutical production and exports to boost Singapore’s manufacturing and trade levels. The sector has been the best performing this year, and has recorded expansions in the past five months.

The information and communication sector’s endeavours in the adoption of 5G technology has also caught Gan’s eye.  Quoting the infocomm Media Development Authority (IMDA), he says the development is slated to ‘spur innovation, create exciting businesses and job opportunities and position Singapore as a leading digital economy’.

The sector is also set to grow from heightened telecommuting and e-commerce purchases, adds Gan.

Still, he is looking at a 4.0% contraction in Singapore’s growth this, marking the republic’s deepest recession since independence.

“There still remains a high degree of uncertainty over Singapore’s economic prospects. The very nature of the pandemic is fluid, and it could still be more severe and protracted than previously anticipated,” stresses Gan.

“Any exacerbation of the COVID-19 pandemic globally will likely prove to be more detrimental than beneficial for Singapore’s manufacturing environment”.