The COVID-19 Outbreak Throws a Wrench in Singapore’s Economy with a Contraction of 2.2% in Q1
Just like many other countries across the globe, Singapore has also had its share of struggles with COVID-19. Reliable statistics have recorded 631 active cases of the killer virus. There have been six deaths, 25 of these cases are critical while 544 people are reportedly in stable condition and recovering.
The country seems to have taken control of the pandemic. However, its economy has not been spared having contracted by 2.2% in the first quarter. This was against the 2020 forecast and it is the worst in two decades according to the Ministry of Trade and Industry (MTI).
COVID-19 is like an economic tidal wave striking Singapore shores
According to the head of research and strategy at OCBC, Ms. Selena Ling, the pandemic has caused a tsunami in three primary sectors; manufacturing, services, and construction. The services industries contracted 3.1% as a result of weakened tourist arrivals. Air transport, food services, and accommodation services have contracted sharply. Many hotels have resulted in offering staycation packages in an attempt to attract the locals.
On the other hand, the contraction of the manufacturing sector was at 0.5 percent year-on-year. The electronics and chemical clusters had the highest levels of decline followed by precision engineering clusters and biomedical manufacturing.
A decline in the construction activities of the private-sector weighed down on the construction sector by 4.3%. The COVID-19 outbreak came with lockdowns and travel restrictions imposed by other countries, which have continued to adjourn the traveling plans of foreign workers. All this sounds scary and, “Even an improvement in the manufacturing sector in the coming quarters will not be enough to offset the drag. This will be a services-led full-year recession,” says Irvin Seah, the DBS senior economist.
The overall result is the downgrading of the country’s domestic product forecast from 4 percent to 1%. This was against the projections from city-state’s trade and industry officials of 0.5% to 1.5%. And at this point, Seah adds that a recession is “inevitable” and this would be worse than the Asian financial crisis.
The heightened uncertainty in the global economy
Undoubtedly, the coronavirus outbreak is only making the economic state of affairs worse. There are heightened fears across the globe of surging infections. It is not clear how long the severity will last and according to the MTI, the degree of uncertainties is rising by the day. And despite all the health measures being undertaken, some health institutions and workers are overwhelmed with massive cases of the COVID-19.
Travel bans not only apply to people but also to the transportation of a majority of goods. China, which is the hub of manufacturing has closed some of its major production plants. Italy, Spain, the UK, Germany, France, Japan, Korea, Switzerland, and Iran are some of the countries experiencing lockdowns. All these countries were part of the 69% of Singapore’s total tourist arrivals accomplished in 2019. The country’s GDP in tourism is usually around 4 percent.
Strong policy responses are therefore required to arrest the fall
Under the leadership of Prime Minister Lee Hsien Loong, Singapore’s government has won rounds of applause for being able to handle the crisis. Loong is awaiting one last election before he can step down. Thus, just like many leaders, he is still expected to reinforce strong policies, which will help in arresting the situation.
Together with his Deputy Prime Minister, Heng Swee Keat, Lee has vowed to help workers, and businesses get through this tide through what he is referring to as a “black swan” event. In February, the government pledged an S$4 billion Stabilization and Support Package. There is also a rising expectation of an additional stimulus package, which will take hundreds of thousands of households a long way into waging through the storm.
Seah has applauded all these measures by the government citing that it is a crucial consideration that other governments should make. They will go a long into alleviating the adverse impacts of the Covid19 outbreak on various sectors and the economy at large.
But will the stimulus funds regenerate the economy? What about if the pandemic triggers a full-blown recession?
Due to economic pressure, many European governments including the UK and Germany are now introducing aid packages. However, this ability may not last for long according to financial analysts. Take Thailand for example, it got into a state of emergency and according to Bank of Thailand, there is a likelihood of having an increased government spending by 5.8%.
Even though the stimulus funds are aimed at cushioning the economy, this could be risky for many governments especially if the pandemic triggered a full-blown recession. This would result in massive job losses, loss of lives and in the long run, more funds would be needed. The result would be a sovereign debt crisis.
The response of banks to the coronavirus pandemic
Despite the negative outlook, banks have remained at the forefront while attracting public attention. Their stability is very important given that they provide services to both corporates and individuals. Fortunately, they have not had a direct effect like it is the case with many retail institutions. They have taken advantage of this situation to make their clients feel comforted and taken care of.
Many of them have waived various fees on credit cards and mortgage payments. They have also granted their clients access to fixed saving accounts. Nonetheless, they are doing this will all caution and bearing in mind that the crisis could last for another two or three months. To cushion themselves, they are reassessing their client’s portfolios and reclassifying some borrowers as high risk.
Meanwhile, over the years, the world has experienced different kinds of disasters including Ebola, SARS, and Zika all of which have had severe consequences. However, the global impact of COVID-19 should make every nation rethink its policies and measures of dealing with disasters to make them bearable or manageable.