SINGAPORE – The Covid-19 shock has hit Singapore’s home-based industries more severely than in past recessions, so the economic recovery is likely to take longer, the Singapore Monetary Authority (MAS) said on Wednesday (October 28th).
MAS said the pace of recovery is expected to be moderate in the coming quarters as firms and households continue to refrain from losing revenue and growing uncertainty, in turn to hold back investment and discretionary spending.
Poor risks to growth prospects may also materialize if a resurgence of global Covid-19 infections causes more outages and results in lower-than-expected external demand, or if domestic labor market conditions deteriorate further and impede decisive adoption. in consumer demand.
MAS reiterated the government’s forecast for a shrinking economy this year by a record 5 to 7 percent due to the coronavirus pandemic. It is stated that the economy will grow above the trend for 2021 as a result of the effects of the low base in 2020.
“The road ahead remains murky with uncertainty,” MAS warned in its macroeconomic review, published twice a year on Wednesday.
“Some pockets of the economy, especially domestic travel-related services and some contact-intensive ones, are not expected to recover to pre-pandemic levels by the end of next year.
Singapore’s economy recorded its worst performance so far in the second quarter due to switching measures, before experiencing a jump in growth in July-September when most of the curbs were relaxed.
The nation’s gross domestic product (GDP) fell 13.2 percent in the second quarter to a seasonally adjusted quarter-on-quarter. In the jump in the third quarter, the economy expanded by 7.9 percent by the same measure.
While some sectors, mainly export-driven manufacturing, have since seen a pickup in the reopening of the economy, total output is still about 7 percent below pre-Covid-19 levels, MAS reported.
Measures to support the government budget also helped the jump in the third quarter. The stimulus from fiscal support is likely to diminish in the fourth quarter, even as some measures such as the Job Support Scheme may survive.
DBS Bank senior economist Irwin Xia said that while the Singaporean economy is recovering, with phased-outs and returns to some regional markets, the recovery will remain uneven and growth performance across sectors will vary considerably.
“The services sector is bearing the brunt of the crisis and is expected to remain a cube for growth and employment,” he said. Sia.
MAS said that unlike the global financial crisis of 2008, when the unemployment rate returned to pre-crisis levels after six quarters, employment recovery was likely to be uneven and slow.
Indeed, the household unemployment rate continued to rise by an average of 4.3 percent in July to August, even after the reopening of the second phase of the economy in June when the rate was at 3.8 percent.
MAS said the unemployment rate among Singaporeans and permanent residents is likely to remain high in 2021, keeping wages low.
The central bank also said the Covid-19 recession was unprecedented in its intensity, resulting in a cumulative GDP decline of 14 percent from pre-crisis levels in the fourth quarter of 2019 to the trough in the second quarter of 2020. This compares with an average contraction of 6.1 percent in previous recessions.
Explaining why the recovery will take longer, MAS said the Covid-19 shock disproportionately affected home-oriented travel-related services in Singapore – such as food and beverages, retail, construction and aviation and hospitality – as opposed to previous recessions. from the external-oriented production sector. These sectors have stronger interconnections with companies and households within the domestic economy, which amplifies the negative shock.
“Although domestic-oriented sectors account for a smaller share of GDP compared to externally-oriented sectors, they generate significant indirect effects or negative overflows to the economy through production and consumption channels,” MAS said.
The loss of final demand in the hardest hit sectors generates ripple effects across supply chains, affecting other firms in the same or different industries. The fall in final demand is also encouraging companies in the hardest-hit sectors to make proportional pay cuts for their employees, which will weaken household consumption.
Thus, MAS said: “In all likelihood, the recovery will be longer than in the past.”
For the global economy, the central bank expects the short-term jump – backed by unprecedented fiscal and monetary policies – to fade into an incomplete recovery.
World economic growth is projected to return to trend during 2022 as the recovery slows, but from a lower level by the end of 2021, leaving the global economy in a permanently smaller GDP trajectory, the report said.
Global GDP is projected to decline by 3.9 percent in 2020. While the world economy will recover to grow by 6.2 percent in 2021, it will still be about 4 percent below the level predicted before the Covid-19 shock.