Singapore cuts economic forecast, on course for worst recession since independence
- The city state’s growth forecast now stands at a range of -7.0 per cent to -4.0 per cent, putting it on course to its worst contraction since 1964
- The biopharma sector is seen as among ‘the pockets of resilience’ in the economy, while industries such as manufacturing and construction will be hard hit
The city state’s growth forecast now stands at a range of -7.0 per cent to -4.0 per cent, down from the official prediction of -4.0 to -1.0 per cent in March.
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The latest forecast range puts the country on course to its worst recession since the 3.2 per cent contraction it experienced in 1964, a year before it separated from Malaysia to become an independent nation.
In the 1998 Asian Financial Crisis it shrank by 2.2 per cent. In 2009 – at the height of the Great Financial Crisis – the republic’s economy grew by 0.1 per cent even though the official forecast was in the -9 to -6 per cent range.
Figures released on Tuesday showed the economy shrank by 0.7 per cent in the January to March quarter, an upwards revision from earlier flash estimates that put the figure at -2.2 per cent on a year on year basis.
“There remain significant uncertainties in the global economy. First, there is a risk that subsequent waves of infections in major economies such as the US and euro zone may further disrupt economic activity,” the Ministry of Trade and Industry said in a statement.
“In particular, if infections start to rise and strict measures such as lockdowns and movement restrictions are reimposed, the downturn in these economies could be more severe and prolonged than expected,” it said.
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Singapore’s Manpower Ministry warned it expected labour market conditions to worsen later this year, citing “considerable uncertainty” around the pace of reopening of economies around the world.
“We do expect that the labour market conditions will deteriorate and we have to be prepared for a rise in retrenchments,” a spokesperson said, according to broadcaster Channel NewsAsia.
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Analysts said contraction in the second quarter will be particularly grim, as the effects of the two-month partial lockdown are laid to bare. Key sectors such as tourism, electronics manufacturing and retail slowed to a crawl during the lockdown as most businesses were ordered to suspend work.
The government has said only about 15 per cent of the country’s 2.4 million workers were still commuting to work amid the tightened measures. In sectors such as financial and insurance services – which make up 13.9 per cent of the economy – most employees have been working from home.
Selina Ling, OCBC Bank’s head of treasury research and strategy, predicted a double-digit contraction in the April-June quarter. HL Bank senior treasury strategist Jeff Ng forecast a 20 per cent contraction in the same period.
Ng said he was hopeful of a “strong rebound” in the third quarter even amid a “fluid” situation, citing “sky-high” production in the pharmaceutical sector. Tuesday’s data showed the country’s manufacturing sector grew 6.6 per cent in the first quarter compared to last year, buoyed especially by the biomedical sector. This reversed three straight quarters of contraction.
The trade ministry in its statement identified the biomedical manufacturing sector as among “the pockets of resilience in the Singapore economy”, adding that it expected the sector to continue to expand as it is supported by production of pharmaceutical and biological products.
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It said “outward-orientated sectors” such as manufacturing, wholesale trade, transportation and storage will be hard-hit by the economic slowdown in Singapore’s key trading partners.
Outlook for the accommodation and food services sector was also bleak. The sector fell by 23.8 per cent on an annualised basis in January-March, compared with 2.5 per cent growth in the previous quarter.
“GDP growth may not return to positive territory until the fourth quarter of 2020, but the second quarter is likely to mark the bottom and the third should see a modest sequential improvement,” she said.
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