Singapore cuts GDP forecast for 2020, cites risk to China’s growth from coronavirus

The city state lowered its forecast to -0.5 to 1.5 per cent, as it released final GDP figures for 2019 showing 1 per cent growth for the fourth quarter
Analysts said manufacturing, tourism and exports would be hit as Singapore’s economy is now more dependent on China compared to 2003 during Sars

Coronavirus Singapore

Dewey Sim

Published: 8:34am, 17 Feb 2020

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Singapore’s trade ministry downgraded its growth forecast for 2020 to a range of -0.5 to 1.5 per cent from 0.5 to 2.5 per cent previously, citing the fallout from the novel coronavirus outbreak on China’s economy that would affect the region.

The last time the Singapore economy recorded a full-year contraction was in 2001 due to the dotcom crash, when growth was at -1.1 per cent. But the ministry added it expected growth to come in at around 0.5 per cent.

“In China, GDP growth in 2020 is expected to come in lower than earlier projected due to lower household consumption as a result of the lockdowns and travel restrictions implemented in several major Chinese cities to contain the spread of the virus,” said the Trade and Industry Ministry in a statement.

“These developments in China will, in turn, have a knock-on impact on regional economies, including the Asean economies, through lower outbound tourism and other import demand from China, as well as disruptions to supply chains.”

People seen in masks at the Central Business District in Singapore, February 12, 2020. Photo: EPA-EFE

The ministry gave its outlook as it released figures that showed Singapore’s export-focused economy had grown modestly by 0.7 per cent in 2019.

It fell within the government’s forecast of 0.5 per cent to 1 per cent but was markedly lower than the 3.4 per cent recorded in 2018, with growth for 2019 the slowest in a decade.

Fourth-quarter growth was 1 per cent compared to the same period a year ago with improvements in the construction and services sectors compensating for weakness in manufacturing.

Analysts had earlier suggested that the manufacturing industry – hit hard by the trade war – could bounce back, with economists unanimous in saying that Singapore’s economy was likely to further improve in 2020.

But this “initial optimism” had been clouded by the coronavirus outbreak, said Song Seng Wun, economist at CIMB Private Banking, suggesting that Singapore’s bellwether economy would likely see a contraction in the first quarter of 2020.

Growth worries are also escalating across the region. Thailand lowered its 2020 outlook on Monday, forecasting growth in a range of 1.5 to 2.5 per cent, down from 2.7 to 3.7 per cent previously. The economy expanded at its weakest pace in five years in 2019, even before the virus hit the tourism industry that makes up about one-fifth of the kingdom’s GDP.

Recession fears are also growing in Japan following a bigger than expected contraction in GDP in the fourth quarter.

The trade ministry in its statement warned there could be a sharper pullback in global consumption, if the outbreak continued. It also flagged other uncertainties in the global economy. These included US-China trade relations, which remain tense, and geopolitical friction in the Middle East that is contributing to greater volatility in financial and commodity markets.

VIRUS ‘FEAR FACTOR’

The coronavirus, which causes a disease known as Covid-19, originated from China’s Hubei province and has since infected over 71,000 people and killed more than 1,700.

Lee Ju Ye, economist at Maybank Kim Eng, said Singapore’s trade war recovery story had originally been expected to play out in the first quarter of this year.

“But with the outbreak, it disrupts the whole recovery altogether,” she said.

Song said the coronavirus outbreak had a bigger direct impact on Singapore than the trade war because of the “fear factor” – if citizens were fearful, they were likely to refrain from heading out, and this in turn would affect the city state’s economy, he said.

“The fear factor has a far more stronger influence on economic activity today than worry about trade fights and the implications on the economy,” said Song.

Singapore’s Prime Minister Lee Hsien Loong shakes hands with Health Minister Gan Kim Yong during a visit at the National Centre for Infectious Diseases building. Photo: AFP

Singapore’s Prime Minister Lee Hsien Loong last Friday said it was too early to tell whether the city state would experience a recession, but that it was possible.

He described the impact of the coronavirus outbreak as being much greater than the severe acute respiratory syndrome (Sars) outbreak in 2003, when a total of 238 infections and 33 deaths were recorded in the island.

Singapore’s economy registered a drop of 4 percentage points in GDP in the second quarter of that year, but the outbreak was contained in May 2003, and third-quarter growth climbed by 5.6 percentage points.

Lee, the Maybank Kim Eng economist, said the city state was now “more dependent” on mainland China for both tourism and exports.

She said the hardest-hit sectors would be air transport, retail and the accommodation and food services, given Singapore’s current ban on all foreign travellers entering from mainland China.

The Lion City’s manufacturing and export sectors would also be affected by ongoing supply chain disruptions stemming from the closure of Chinese factories and ports as the virus claimed more lives.

“Given how China has become a much bigger player in the economy now, we do think the weakness will not just be on the tourism sectors but would likely spread to manufacturing and exports as well,” said Lee, who expects a 1 per cent year-on-year contraction for Q1.

The Singapore government has put in place measures to help businesses impacted by the coronavirus outbreak. Photo: Bloomberg

The construction sector will also be hit, said Song, who suggested that projects are facing delays because materials cannot be shipped from China.

To help these sectors affected by the virus, the Singapore government has put in place measures to help businesses impacted by the virus, to help them reduce business costs, alleviate cash flow problems, and retain workers.

Economists expect that these measures, to be unveiled during Tuesday’s budget announcement, will be similar to the S$230 million Sars relief package, which included property tax rebates, a reduction in the foreign worker levy for unskilled workers, and enhanced training grants.

Lee suggested that some sectors could offer a “silver lining” too.

For example, the information and communication industry could see a slight lift, she said, given the growing demand for teleconferences as the virus forces more Singaporeans to work from home.

“Perhaps only the health care sector and health care services will see a jump because there is higher demand now,” Lee said.

Lee believed the impact from the coronavirus was more of a “short term shock”, in which dampened global travel had led to a lack of demand for goods and services.

“But once this ends, my guess is that the recovery would be strong because there will be a lot of pent-up demand from tourism as well as retail sectors,” she said.

Additional reporting by Bloomberg

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