Singapore’s virus-hit economy could shrink by as much as seven percent this year — the worst reading since independence — the government said Tuesday, as it unveiled a fresh multi-billion dollar stimulus package.
The city-state is seen as a bellwether of the global economy, and the forecast historic contraction highlights the extreme pain being wrought on countries by the killer disease.
The warning came as Singapore’s deputy prime minister unveiled a fresh support package worth Sg$33 billion ($23.2 billion) for the troubled city, which has been crippled by months of lockdowns around the world.
The trade ministry’s forecast — which was a downgrade from the maximum four percent contraction predicted in March — came as official data showed the economy shrank 0.7 percent on-year in the first three months of the year, while it reduced 4.7 percent from the previous quarter.
The financial hub is one of the world’s most open economies, and is usually hit hardest and earliest during any global shock.
The ministry said the new estimate was made “in view of the deterioration in the external demand outlook” and the partial lockdown imposed domestically. A contraction of seven percent would be the worst since the city’s independence in 1965.
Shutdowns in major markets such as the United States, Europe and China have crippled demand for exports, and a halt in international air travel has hammered Singapore’s key tourism sector.
Singapore has ordered the closure of most businesses, advised people to stay at home, and banned large gatherings. While officials say they may start relaxing the rules from early June, many restrictions will remain in place.
Deputy Prime Minister Heng Swee Keat, who is also the finance minister, announced in parliament the new package largely aimed at helping companies save jobs.
The government has so far earmarked more than Sg$90 billion, or 20 percent of GDP, to cushion the economic fallout from the virus, which has infected over 32,000 people in the city-state, the highest in Southeast Asia.
“It has been an unprecedented crisis that is still changing rapidly,” Heng said, adding Singapore has the “fiscal resources to mount this response”.
Song Seng Wun, an economist with CIMB Private Banking, said he expects the second quarter to bear the full brunt of the fallout, with GDP expected to contract 15-20 percent.
“Singapore is a small and open economy whose trade is three times the size of GDP. The sharp contractions are a reflection of its external vulnerability,” he told us.
The trade ministry also said “significant uncertainties” remain despite the opening up of some economies as they slowly emerge from lockdowns.
“First, there is a risk that subsequent waves of infections in major economies such as the US and eurozone may further disrupt economic activity,” it said.
“Second, a growing perception of diminished fiscal and monetary policy space in many major economies could damage confidence in authorities’ ability to respond to shocks.”
The trade ministry warned that “notwithstanding the downgrade, there continues to be a significant degree of uncertainty over the length and severity of the COVID-19 outbreak, as well as the trajectory of the economic recovery”.
Singapore’s central bank in March eased monetary policy to support the virus-hit economy.