Market watchers are looking at a 7.6% year-on-year contraction in Singapore’s economic growth for 3Q2020 ending in September, according to findings from the Monetary Authority of Singapore’s (MAS) survey of professional forecasters released on September 7.

For the full-year, the 26 economists and analysts polled expect GDP to decline by 6%, down from an estimate of -5.8% in the previous survey published in June. This level is in line with official estimates pointing to a 5 – 7% shrinkage in the economy this year.

The market watchers’ move follows the 13.2% year-on-year contraction in Singapore’s economy in 2Q2020, which was worse that the 11.8% decline anticipated by respondents in the June poll.

“The rationale for these forecast revisions can be attributed to the strong risk-on sentiments since the re-opening of global/domestic economies since June, the dovish commitments by major central banks to keep monetary policy accommodative for longer, and the yield-seeking investor behaviour due to the very low interest rate environment,” says Selena Ling who head’s OCBC Bank’s treasury research and strategy department.

The tremors of the Covid-19 health-turned-economic crisis – unsurprisingly – topped the list of downside risks identified by the survey respondents. This is as any further waves of coronavirus infections or delays in the development of a vaccine will cause further disruptions to global supply chains, business operations and employment.

A further escalation of US-China trade tensions also continued to be a concern for respondents with 60% citing this as a risk, up from 55.6% in the previous survey.

A slowdown in other economies was another concern flagged by market watchers – presumably due to its spillover effects on Singapore’s goods and services.

As for potential upside risks for Singapore’s growth outlook – the containment of the Covid-19 outbreak – unsurprisingly – emerged as the most highly expected.

Respondents also identified stronger-than-expected manufacturing sector performance, led by electronics and pharmaceuticals production, as a key upside risk. This was identified by 40% of respondents, compared with 55.6% in the previous survey.

Another phenomenon raised was the easing of tensions between the US-China, due to the benefits it will bring to global manufacturing activity and export flows. 

On a sectoral basis, market watchers expect accommodation and food services to take the biggest hit with a 29.1% year-on-year contraction. This is wider than the 26.0% slowdown forecast in June.

Construction is another sector slated to face a 23% year-on-year plummet – following its historic 53.9% contraction in 2Q2020. The lasts prediction is a significant deviation from the 11.4% decline predicted in June.

Private consumption (-11.8%) and wholesale and retail trade (-6.4%) are other sectors headed towards a decline this year.

In contrast, things are looking up for the finance and insurance (+4.9%) and manufacturing (+2.3%) sectors this year as they deemed essential services.

Given these movements, market watchers predict unemployment will hit 3.5% by the end of the year, down a smidgen from the 3.6% predicted in the June survey. 

This is as fiscal support measures such as the Jobs Support blanket wage subsidy and SGUnited Jobs and Skills opportunities are to protect and create jobs.

Meanwhile, inflation expectations have moderated since the June survey, to -0.4% for headline inflation – the measure of total inflation - and -0.3% for core inflation – the price gauge excluding private road transport and accommodation. This is down from the 0.5% decline estimated in June.

All eyes are on the MAS to see if it will weaken or strengthen the Singapore Dollar Nominated Effective Exchange Rate (S$NEER). Respondents expect the exchange rate for the year to hover at $1.370 per USD, against $1.400 forecast previously.

For now, it is hard to say when Singapore’s economy will return to pre-Covid levels given the uncertainty in the global economy.

“Even assuming 5.5% growth in 2021, the value of Singapore GDP will not return to the 2019 pre-Covid levels,” notes OCBC’s Ling. She is expects the city-state’s economy to grow 4% next year – depending on the speed and availability of a vaccine. Only then can the Covid-19 bug be given a shot in the arm.