Singapore's GDP may shrink by 1-4% this year: MTI

Singapore's economy will likely experience its worst annual decline ever as an escalating coronavirus pandemic chokes the life out of economic activity both at home and abroad.

The gross domestic product (GDP) may shrink by 1 to 4 per cent this year amid mounting border controls and lockdowns around the world to contain the pandemic, and a sharp pullback in domestic consumption, said the Ministry of Trade and Industry (MTI) yesterday.

If contraction hits the forecast range midpoint at 2.5 per cent, it will be the worst since the Asian financial crisis in 1998, when annual GDP growth shrank by 2.2 per cent.

If the more negative end of the estimate is reached, it will be comparable to the 3.2 per cent contraction in 1964.

This is the second time GDP growth has been downgraded in a little over a month. The last estimate of minus 0.5 per cent to 1.5 per cent was released just before Budget 2020 last month.

Given the rapid deterioration of the economic outlook, Singapore has announced a supplementary budget of about $48 billion. This is in addition to the $6.4 billion stimulus package unveiled last month and raises the total to around $55 billion, or 11 per cent of GDP.

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The growth downgrade by MTI was triggered by advance GDP growth estimates that showed the economy contracting by 2.2 per cent year on year in the first quarter - the worst year-on-year contraction since the first quarter of 2009.

It is also the first time since the third quarter of 1998 that all three key sectors of the economy have contracted on a year-on-year basis.

The manufacturing sector contracted by 0.5 per cent, construction by 4.3 per cent, and services, which account for about two-thirds of GDP and employment, by 3.1 per cent.

MTI cited the spillover effects of global supply chain disruptions, the sharp decline in tourism and disruptions to domestic demand from social distancing measures as the main reasons for first-quarter growth decline across the three sectors.

Since advance estimates are computed largely from data in the first two months of the quarter, the full-quarter growth may have to be revised even lower in the Economic Survey of Singapore due in May.

OCBC Bank's head of treasury research and strategy Selena Ling said: "March was (the month of) the second wave of imported infections, tightened social distancing restrictions and the more recent measures to close entertainment venues and tuition and enrichment centres, which could take another toll on business and consumer sentiments."

A labour crunch after Malaysia imposed a movement control order on its borders with Singapore may also contribute to the contraction.

UOB downgraded its full-year GDP growth forecast to minus 2.5 per cent. DBS has revised its forecast down to minus 2.8 per cent, and OCBC sees a possible 3 per cent contraction.