Record plunge: Singapore enters recession with 41% contraction

Second-quarter economic drop was driven by a fall in overseas and domestic demand, but analysts say slump will be short.

epa08544549 People walk through The Shoppes at the Marina Bay Sands in Singapore, 14 July 2020. Singapore''s economy shrank a record 41.2 percent as a result of the circuit breaker measures implemented
The coronavirus lockdown hit Singapore's retail industry badly but analysts say consumer spending should recover somewhat as the government now has more experience in fighting the virus [Wallace Woon/EPA]

Singapore’s economy slipped into recession in the second quarter, contracting by a record 41.2 percent from the previous three months, and is facing its biggest slump ever this year as measures to contain the coronavirus hammered the trade-reliant country.

Economists polled by the Reuters news agency had expected a 37.4-percent slump, but the pandemic took a heavy toll on the construction sector, which plunged 95.6 percent.

On a year-on-year basis, gross domestic product (GDP) plummeted 12.6 percent, preliminary data from the Ministry of Trade and Industry showed on Tuesday. Economists had forecast a 10.5-percent contraction.

The plunge in demand for goods around the world due to the virus has dealt Singapore a heavy blow. According to World Bank data, the value of its exports and imports amounts to more than four times the size of its GDP, making it the world’s fourth-most trade-dependent economy.

The GDP slump marked the second consecutive quarter of contractions for the wealthy city-state – having declined a revised 0.3 percent year-on-year in the first quarter and 3.3 percent quarter-on-quarter – meeting the definition for a technical recession.

Analysts had expected the Southeast Asian economy to see a deep contraction in the second quarter due to a lockdown between April and June, dubbed a “circuit breaker” by authorities, in which most workplaces closed to curb the spread of the virus.

Singapore expects its full-year GDP to contract in the range of -7 percent to -4 percent, the biggest downturn in its history.

epa08544543 The skyline of the financial district reflected in a lotus pond next to the ArtScience Museum in Singapore, 14 July 2020. Singapore's economy shrank a record 41.2 percent as a result of thSingapore’s economy slipped into recession in the second quarter, contracting by a record 41.2 percent from the previous three months [Wallace Woon/EPA] 

“With the reopening of the Singapore economy, we should see a modest uptick in terms of economic activity in third quarter. We think third quarter will show some improvement, but will still be in contraction territory,” said Selena Ling, OCBC Bank’s head of treasury research and strategy.

But other analysts are slightly less bearish, betting that the government’s rescue package and stimulus measures would result in better times ahead.

The government has pumped in nearly 100 billion Singapore dollars ($72bn) worth of stimulus to blunt the impact of the pandemic.

“The key reason for optimism is the huge size of the government’s stimulus package, which is equivalent to around 20 percent of GDP. This has supported businesses and households through the crisis, which should allow output to bounce back now that the economy is reopening,” Alex Holmes, Asia economist at Capital Economics, wrote in a research note sent to Al Jazeera.

“Support measures, including tax deferrals, wage subsidies and working capital loans, has kept afloat many viable businesses that might otherwise have gone under. April data show that corporate insolvency filings fell after government support kicked in. Much of this support has been conditional on businesses retaining staff.

“And where jobs have been lost, the government has been proactive in providing retraining, which should help to minimise the scarring effects of the crisis on the labour market,” said the Capital Economics’ note, adding that the research firm expects the economy “to rebound by 10 percent in 2021.”

The People’s Action Party, which extended its unbroken rule in last week’s election held in the midst of the pandemic, has said protecting Singaporean jobs is its biggest priority.

epa08544547 People walk through The Shoppes at the Marina Bay Sands in Singapore, 14 July 2020. Singapore's economy shrank a record 41.2 percent as a result of the circuit breaker measures implementedPeople walk through The Shoppes at the Marina Bay Sands in Singapore [Wallace Woon/EPA]

A silver lining

Manufacturing was the one bright spot in the latest economic picture, according to some analysts.

“Strength in pharmaceutical production continued to offset weakness in oil-related manufacturing sectors. Moreover, the ongoing rebound in the electronics sector has been encouraging,” HSBC economist Yun Liu wrote in a research note sent to Al Jazeera.

Liu said she expects the recession to be a short one as the government could now build on its earlier experience of containing the pandemic.

“[The economy] … will embark upon gradual recovery from [the third quarter]. While there is a very real risk of another wave of virus transmission, and we realize that some discretionary consumer activity will remain subdued until a vaccine is available, effective tracing and containment efforts in Singapore should prevent the type of outbreak seen in [the second quarter].”

Source: Al Jazeera, News Agencies