Singapore: More pain from the pandemic shock


The Singapore economy could sink into a deep and protracted recession of -5.7% amid the impact of the pandemic and resulting circuit breaker.
Irvin Seah27 Apr 2020
  • Singapore‚Äôs services and construction sectors will bear the brunt of the circuit breaker extension
  • We now expect the economy to sink into a deep and protracted recession of -5.7%
  • Should Singapore fail in containing the outbreak, GDP growth could plunge to as low as -7.8%
  • Retrenchments may spike to 45,600, while resident unemployment rate could rise to 4.2% sa
  • Policies will remain supportive and at times bold to cushion the economic fallout
Photo credit: Unsplash


The government has announced an extension of the COVID-19 circuit breaker period by four weeks till 1 Jun20, as well as implementing tighter measures in what is perceived as a decisive move to bring down the number of transmissions locally. Singapore now has the highest number of Covid-19 cases in Southeast Asia, and the fifth highest in Asia, behind China, India, Japan and South Korea.

The implementation of the circuit breaker in early April, and the extension to 1 June, though necessary to contain the outbreak, will be a nail in the coffin for many locally oriented industries (e.g., construction, retail, F&B, business services). The relief measures in the Solidarity Package will help, but some businesses with weaker financial standings may not survive this crisis. This implies more company cessations, bankruptcy and job losses ahead. As the measures turned more onerous, so is the corresponding drag on the economy. This is further exacerbated by a rapidly deteriorating global environment. Though there are emerging signs of a recovery in China, it is still a long way before global trade, travel and business activities return to normalcy.

In light of all the downside risks, we have downgraded our full year growth forecast significantly to -5.7%, from -2.8% previously. Compared to the previous forecast, the belly of this U-shaped trajectory is now deeper, and the duration of the contraction is also expected to be more protracted. Headline YoY GDP growth could fall below -7% in the coming two quarters and will likely remain in negative territory till 2Q21. This will be the darkest year for the Singapore economy since Independence.

More importantly, should Singapore fail to contain the spread of the virus even after the extension of the circuit breaker, and hence forced to extend this quasi lockdown further; or if there is a re-emergence of a second wave of infections across the globe, forcing countries that are on the path of recovery to reimpose lockdown for an even longer period, economic growth could be pushed even deeper into the red. In such a risk scenario, headline GDP growth for 2020 could potentially fall to as low as -7.8%.

The government has rolled out three separate stimulus packages (Unity: SGD 6.4bn; Resilience: SGD 48.4bn and Solidarity: SGD 8.9bn) and eased monetary policy aggressively in a bid to cushion the economy from the impact of the Covid-19 pandemic [2]. Cumulatively, the total fiscal response to this pandemic has reached SGD 68.8bn or about 13.8% of nominal GDP. Without these measures, the economic pain could be even more acute.

Despite these efforts, a significant number of jobs could still be lost as the economy dips into an unprecedented deep recession. Companies may have to shed more headcounts to bring manpower costs to be in line with the fall in earnings. In addition, some companies with weaker financial standings could go belly up. Total retrenchments could potentially rise to 45,600, based on our revised estimates. This will push resident unemployment rate to 4.2% sa by year-end, from 3.2% as of 4Q19, while overall unemployment rate could rise to 3.6%, from 2.3% previously.

The Singapore economy could sink into a deep and protracted recession. Many companies may crumble, and more jobs could be lost. Even if Singapore succeeds in bringing down the number of local cases, it will still be a long way before economic activities resume to normalcy. The recovery will be tepid due to fear of a second wave infections. As a result, policies will remain supportive and at times bold to cushion the economic fallout. Expect nothing less than an arduous path ahead.


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Irvin Seah

Economist - Singapore, Malaysia & Vietnam
irvinseah@dbs.com

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