Economists are maintaining a cautious stance on Singapore’s economic growth for the year as the city-state reels from the Covid-19 bug. 

The republic is now looking to shrink between 5% and 7% this year, lower than the 4% and 7% previously forecast, the Ministry of Trade and Industry (MTI) revealed on August 12.

The revised forecast follows the historic drop in 2Q2020 GDP to 13.2% year-on-year, sharper than MTI’s advance estimate of a 12.6% drop and the -0.3% dip experienced in 1Q2020 ended March.

See: Singapore's economy declines a historic 13.2% in 2Q20; 2020 GDP lowered to -7% and -5% : MTI

In this time, private consumption expenditure recorded the sharpest drop of -28.2%, from -2.4% in the previous quarter, economists at RHB Securities point out in an August 11 note. 

Similarly, gross fixed capital formation and net exports registered contractions of -27.2% and -3.7%m presumably as businesses adopted cost cutting measures to relieve their bursting cashflows.

In contrast, government consumption expanded to 22.1% in 2Q2020, from an 8% growth in the quarter ended March, the RHB team observe. This marks the strongest growth in government expenditure since 3Q2001 and follows the extensive, unprecedented four fiscal stimuli disbursed in the first half of the year to tide businesses and households through the crisis.

Still, CGS-CIMB economists Michelle Chia and Muhammad Zulkeffeli expect consumption to face further pressure, despite Singapore’s gradual reopening since phase one took off on June 1.

“We foresee improvements to domestic spending after the easing of social distancing restrictions in Jun, but still short of a full recovery to pre-Covid-19 levels amid concerns over job security and ongoing caution over a ‘second wave’ of the pandemic,” the duo say in an August 11 note.

Agreeing, consultants at credit ratings’ firm Fitch Solutions highlight that consumers will cut back of discretionary spending and “re-focus their spending towards priority purchases”. These include food, drink and healthcare.

That explains the snaking queues at supermarkets such as NTUC Fairprice and Sheng Siong and the declining patronage at bars, clubs and restaurants.

“Even before they closed, many such outlets suffered a decline in sales, not only because consumers avoided going out for drinks, but also because of social distancing measures put in place that required patrons to be separated from each other, thus decreasing the total capacity of the bar/restaurants,” Fitch’s consultants elaborate.

The decline in consumption has brought a major concern: job security. Singapore’s labour market feeling the pressure from the crisis, causing the unemployment rate to reach 2.9% in June, the highest on record since the height of the Global Financial Crisis in September 2009.

Meanwhile, job losses climbed to 148,000 in the first half of the year. While borne mostly by foreign employees, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Yu anticipate local layoffs to happen in 2H2020 – especially after August – when the job support schemes and wage subsidies expire.

As such, they are looking job losses of 180,000 – 220,000 for this year.

Not all is doom and gloom, the economists say as countries ease their lockdowns and movement control infections. This is expected to resuscitate disrupted global supply chains, say CGS-CIMB’s Chia and Zulkeffeli.

“Industrial activity was dragged by circuit breaker capacity cuts and weak trade activity driven by the global lockdown weighed on real exports and imports,” the duo observe.

“As demand normalises and supply chains ramp up capacity, we expect a recovery in manufacturing and trade in 2H20F, supported by electronics and biomed.”

Against this uncertain backdrop RHB’s economists are maintaining their 2020 growth forecast for Singapore at -5.6%.

“We note that the path to recovery will continue to be uncertain, as downside risks remain apparent. This is in terms of a resurgence in new cases, global financial stresses, and geopolitical tensions arising from protectionist sentiments,” they caution despite their expectation of a pickup in the domestic and global economy in 3Q2020 ending September.

CGS-CIMB’s Chia and Zulkeffeli are more optimistic and expect full-year GDP to come in at -4.9% in FY20F before rebounding to +5.3% in FY21F. This will come from expansions in private-sector led consumption and investment, they note.