Office workers at Raffles Place.
SINGAPORE: Singapore’s grim gross domestic product (GDP) for the April to June period could see a slight upward revision when fuller data for the quarter is available, taking into account the resumption of some economic activities with the lifting of the “circuit breaker” in June, economists said.
It will however remain the worst quarterly figure for the Singapore economy this year, they added, noting that the economy could see “some stabilisation” in the second half.
Advance estimates from the Ministry of Trade and Industry (MTI) on Tuesday (Jul 14) showed second-quarter GDP plummeted 41.2 per cent on a quarter-on-quarter seasonally adjusted annualised basis. This marks the biggest quarterly contraction on record, according to Bloomberg data.
Coming on the back of a 3.3 per cent decline in the first quarter, this means that Singapore has entered into a technical recession, which is defined by economists as two straight quarters of quarter-on-quarter contraction.
On a year-on-year basis, the economy also shrank 12.6 per cent, a sharp deterioration from the first quarter’s revised 0.3 per cent drop.
MTI said the plunge in GDP was due to the roll-out of the circuit breaker rules from Apr 7 to Jun 1 to curb the spread of COVID-19, as well as weak external demand amid a global downturn.
After exiting the circuit breaker on Jun 1, Singapore began a phased reopening of its economy and on Jun 19 entered the second stage, which allowed retail shops to reopen and restaurants to resume dine-ins with social distancing in place.
With the advance estimates computed largely from data in the first two months of the quarter – in this case, April and May which were the two months when non-essential businesses had to be shuttered as part of the circuit breaker – economists said there could be a slight upward revision in the GDP figures after data from the month of June is taken into account.
“Given that Phase 1 began in early June and Phase 2 started sooner than we thought on Jun 19, this allowed businesses to reopen and it means that the June indicators, such as retail sales, will not be as bad as April and May,” said HL Bank’s senior treasury strategist Jeff Ng.
“There are some chances that there will be an upward revision in the second quarter GDP number by a few percentage points,” he added.
DBS senior economist Irvin Seah also noted that the advance estimates were based on data from April and May, when “about 75 per cent of enterprises were not able to function properly” under the circuit breaker measures.
“It will be revised upward when the June numbers come in,” he said, noting that the year-on-year GDP figure could nudge up slightly by “at least two percentage points”.
WORST IS OVER?
Economists also said that the Singapore economy may have bottomed out, although this is hinged on several conditions such as the absence of a second wave of COVID-19 infections that could trigger further slowdown in the global economy and another circuit breaker being imposed locally.
“Looking ahead, second quarter will mark the trough,” said Mr Alex Holmes from research firm Capital Economics.
“The high-frequency data that we track show that domestic activity started to rebound once restrictions on work and leisure began to be eased at the start of June,” he added.
“The worst is likely over, even with confirmation that the Singapore economy has entered a recession,” said OCBC’s head of treasury research and strategy Selena Ling, who expects “some stabilisation” to emerge from the third quarter.
There have been improvements in the domestic manufacturing and electronics purchasing managers’ indexes in May and June, a reflection of how global supply chain disruptions have eased, but “the test of the pudding is the recovery pace in the private consumption and in turn the services sector”, she noted.
FOR JOBS, IMPACT CONTINUES
That said, economists expect the full-year GDP figure to show Singapore “mired deep in recession”.
Ms Ling, for instance, is predicting a 5.5 per cent slump. Other economists such as Mr Holmes and Mr Seah expect Singapore’s full-year GDP to contract by 6 per cent and 5.7 per cent respectively.
The authorities in May have projected a full-year economic contraction of 4 to 7 per cent. If borne out, this would mark the country’s worst-ever recession.
The labour market will remain under pressure as a result, with retrenchment and unemployment figures likely to creep higher in the months to come, economists said.
“Employment is always a lagging indicator of economic growth figures,” said Mr Ng. “Right now we may not have seen the worst of the labour market downturn, which may only materialise in the second half of the year.”
“But if the outlook improves, and with many of the support measures from the Government, we hope that would help to limit the fallout,” he said.
Mr Seah said the pace of recovery will be uneven across industries, with battered sectors such as tourism and aviation taking potentially “as long as more than two years” to recover.
“In the near term, this could also be a jobless recovery due to the lag between labour market and the growth cycle,” he added.
“Having gone through a rough patch, employers would want to be sure about business prospects before increasing headcounts, contributing to the slower pace of recovery in the labour market.”
Lower-wage workers could also be disproportionately hit, given that the pandemic has affected many frontline service jobs, said Mr Seah.
This means that the Government will likely have to extend some of its support measures in a “targeted manner” for these workers, as well as companies that have been hit the hardest by the coronavirus outbreak, he added.
Echoing this, Ms Ling said despite the “relatively high bar for additional stimulus”, given the front-loading of monetary and fiscal policies, some of the Budget measures targeting jobs may potentially be extended if the domestic labour market continues to soften.
