Singapore slides into recession as economy shrinks 41.2%

The latest economic data is worse than analysts’ forecast

A couple with face masks walk past a fashion shop in Singapore. The country's quarter-on-quarter growth fell by 41.2 per cent as Covid-19 battered the economy. AFP

Singapore’s economy fell into a recession last quarter as an extended lockdown closed businesses and hit retail spending.

Gross domestic product declined by an annualised 41.2 per cent from the previous three months, the Ministry of Trade and Industry said on Tuesday, the biggest quarterly contraction on record and worse than the Bloomberg survey median of a 35.9 per cent drop.

Compared with the previous year, GDP fell by 12.6 per cent in the second quarter, versus a survey median contraction of 10.5 per cent.

The deep slump shows the blow Singapore’s economy is taking from all sides amid the coronavirus pandemic.

A decline in global trade has hit the export-reliant manufacturing industry, while retailers have registered a record fall in sales after partial lockdown measures were imposed for several weeks last quarter.

The government, which has projected a full-year economic contraction of between 4 per cent and 7 per cent, did not provide a new forecast on Tuesday.

The dismal outlook is mounting pressure on the ruling People’s Action Party, which recorded its weakest performance in last week’s election.

The government pledged about S$93 billion (Dh246bn/$67bn) in stimulus spending to shore up troubled businesses and households and to prevent a surge in retrenchments.

“The road to recovery in the months ahead will be challenging,” Trade and Industry Minister Chan Chun Sing said in a Facebook post.

“We expect the recovery to be a slow and uneven journey, as external demand continues to be weak and countries battle the second and third waves of outbreaks by reinstating localised lockdowns or stricter safe-distancing measures.”

On annualised quarter-on-quarter data, manufacturing fell by 23.1 per cent, compared with growth of 45.5 per cent in the previous three months.

Construction plummeted by 95.6 per cent, while services shrank by 37.7 per cent with airlines, hotels and restaurants restricted during the partial lockdown, when “circuit-breaker” measures were imposed from April 7 to June 1.

Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore, said last quarter’s drop was probably the bottom of the cycle “unless Singapore is forced to regress to the harsher iteration of circuit-breaker measures”.

Additional stimulus has not been ruled out, although “the four fiscal packages need time to permeate and cascade”, he said.

Singapore’s dollar slipped 0.1 per cent to S$1.3920 against the US dollar as of 9.05am local time.

The Straits Times Index dropped by as much as 0.6 per cent on Tuesday and was set for a third day of declines, its biggest losing streak since June 22.

The GDP release provides a window on how deep a recession other Asian economies will probably face.

Thailand’s official forecast of an 8.1 per cent contraction this year is the worst in the region, while others such as India and Indonesia face a surge in virus cases that is exacerbating economic woes.

Factory purchasing managers indexes show that manufacturing across Asia began to pick up at the end of the second quarter, as early phases of reopening in many countries begin to revive demand.

Ho Meng Kit, head of the Singapore Business Federation, said the following two quarters will probably be better than the second quarter.

“Even as the economy has opened up since early June, for example small businesses in domestic retail, they are not at the previous levels because there is still no tourism in Singapore,” he said.

“So, there will be an impact on demand and these sectors will continue to be weak.”

Singapore’s advance GDP estimates are computed largely from data in the first two months of the quarter, and often are revised once the full quarter’s data are available.

“The question is if the second-half recovery will materialise, which will also depend on private consumption coming back,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp.

She expects the economy to contract by 5.5 per cent for the full year.