SINGAPORE (Jul 16): The outlook for the global economy is highly uncertain, as Covid-19 has ravaged markets worldwide at an unprecedented scale, said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS).

Speaking over Zoom at the MAS Annual Report 2019/20 Media Conference on Thursday (July 16), Menon cautioned that recovery will be uneven, with countries that are more successful in containing Covid-19 likely to stage stronger recoveries. 

“We are not at the beginning of the end, but rather at the end of the beginning,” said Menon. 

“MAS expects the global economy to grow by 3.5% in the second half of this year, following an estimated minus 5.5% in the first half,” he warns. “Unemployment and corporate bankruptcies are likely to increase in the months ahead.”

The Eurozone is expected to contract by about 9% this year, while the outlook for the US is mixed, he said. China is expected to grow by about 1% this year, which would make it the only large economy to record an expansion.

Closer to home, the ASEAN-5 economies of Indonesia, Malaysia, Philippines, Thailand and Vietnam are expected to contract by 2.6%, he said. “They will benefit from the emerging recovery in manufacturing; while the collapse in tourism will weigh more on some economies.”

Different industries will also recover at varying speeds, with capital-intensive manufacturing and trade-related services at the front of the line post-pandemic, though they may still face “friction” in their supply chains, said Menon. 

Activities with greater “in-person” interactions – such as hospitality, hotels and restaurants, and tourism – are slated to be among the last to return. Even so, these sectors must still observe strict safe-distancing measures and operate at much lower capacities

While a strong short-term growth bounce is plausible, the longer-term recovery is likely to be weak and gradual, Menon noted. 

“People may be slower to return to previous patterns of work as long as the virus is still circulating,” he warned. “Higher unemployment and greater job insecurity will weigh on household spending, particularly once income support measures start to taper off.”

In the coming months, businesses are likely to hold back investments in view of heightened uncertainty and this will, in turn, dampen the strength of the recovery, he added. 

In Singapore

At home, the Singapore economy contracted by 6.5% y-o-y in the first half of 2020, its first decline since the global financial crisis, he noted. The local economy is experiencing its most severe downturn since Independence, with GDP growth projected at between -7% to -4%.

The hardest-hit sectors include construction, which was halted by the circuit breaker measures and the outbreak in foreign worker dormitories; consumer-facing domestic services, such as retail, F&B and land transport; and travel-related industries like air transport, hospitality, arts and entertainment. Together, these impacted sectors make up roughly 12% of Singapore’s economy. 

Both core inflation and CPI-All Items inflation are expected to turn negative, averaging between −1 and 0% this year. “External inflation and global oil prices will remain low, notwithstanding some upward pressure on imported food prices due to supply disruptions,” he said. 

Domestically, cost pressures from the labour market are expected to ease as firms pause their hiring plans and retrenchments rise.

The property market here has remained stable, thanks to cooling measures progressively implemented over the past decade, he said. These have helped temper price increases and price adjustments have been modest in the face of Covid-19, said Menon. 

“MAS, together with the Ministry of Finance, the Ministry of National Development and the Urban Redevelopment Authority, will continue to watch the market closely to ensure that prices for private residential properties remain broadly in line with economic fundamentals.”