Singapore Sliding Into Recession, A Grim Harbinger For Other Economies

Singapore, the crown jewel of Southeast Asian economies and long regarded as a bellwether for global trade, is bracing itself for a coronavirus-linked recession following gloomy first quarter data.

Singapore’s Ministry of Trade and Industry said the country’s gross domestic product contracted by 2.2% year-on-year in the first quarter, but plunged by 10.6% compared to the prior sequential quarter.

"The COVID-19 outbreak has escalated and led to a significant deterioration in the economic situation both externally and domestically," the ministry said.

Singapore has not ordered a total lockdown, but its services, construction and manufacturing sectors took big hits in the first quarter – creating the worst economic contraction in the city-state since 2009.

"The air transport, accommodation, food services and retail trade sectors [also] shrank on the back of a sharp decline in tourist arrivals as well as a fall in domestic consumption as a result of the COVID-19 outbreak," the ministry added.

Singapore has not recorded a full-year recession in two decades. Moreover, the state’s economy grew by only 0.7% last year, down from a 3.4% expansion in 2018.

"The sharp contraction in Singapore's economy in [the first quarter] was deeper than expected, and with global growth collapsing, the worst is yet to come," Alex Holmes, Asia economist at Capital Economics said.

Indeed, Singapore’s industrial output plummeted by 22.3% in February from the prior month - the biggest drop ever recorded.

“This will likely be the worst economic contraction since independence [in 1965],” said Finance Minister Heng Swee Keat.

The trade ministry reduced its 2020 GDP growth forecast to a range of minus-4% to minus-1%, from a previous range of minus-0.5% to plus-1.5%.

Singapore's tourism agency said it expects a 25% to 30% plunge in visitor arrivals this year, down from last year's figure 19.1 million. Tourism accounts for about 4% of GDP.

"The COVID-19 impact on the Singapore economy will be fairly devastating in terms of both manufacturing ... as well as the growing demand shock afflicting services growth, particularly for the transport, commerce and accommodation industries," Selena Ling, head of research at OCBC Bank, said.

The decline suffered by Singapore could harbinger economic losses across the globe as first quarter numbers start rolling in.

“Singapore’s growth estimate is like the canary in the mineshaft and warns of further economic pain to come for other Asian economies as well,” said analysts at OCBC.

"With a number of major industrial economies now instituting social distancing measures and/or lockdowns, large-scale near-term declines in economic activity are on the way and a global recession is now our baseline," warned Oxford Economics.

Singapore was one of the first states outside China to confirm cases of coronavirus. The small nation has since closed its borders and shut down bars, discos, and cinemas and limited the size of public gatherings.

On Wednesday, Singapore confirmed 631 coronavirus cases and two deaths.

On Thursday, the Singapore government unveiled a $33.7 billion stimulus package to protect the economy from further harm caused by the coronavirus pandemic. This was the second such program announced and far surpasses the $4 billion value of the initial scheme.

Under the latest package, the government will pay 25% of the monthly wages for every employed local worker -- capped at SG$4,600 [$3,210] -- for nine months until the end of 2020. Self-employed workers will get SG$1,000 [$700] a month over that same period.

Singapore’s central bank, the Monetary Authority of Singapore, or MAS, is widely expected to ease monetary policies when it releases its statement on Monday.

"The extent of the first two months already tells you ... how bad it is going to get," said Ling of OCBC. "Come next Monday, MAS will also do what's necessary."

Meanwhile, Singapore's Prime Minister Lee Hsien Loong is expected run for one more election under the banner of his ruling People's Action Party. While he has been praised for his government’s handling of the virus, a worsening economy may make re-election challenging.