SINGAPORE, July 14 — The worst of Singapore’s economic contraction is probably over, but more job losses and wage cuts are to be expected, especially in the latter part of 2020, economists said today.

Figures released today mean that Republic’s economy is officially in recession — though no expert doubted this was on the cards — after recording two consecutive quarters where economic output shrank when compared with the previous quarter.

The second quarter — the three months ending June 30 — contracted a whopping 41.2 per cent compared with the first quarter, following a 3.3 per cent quarter-on-quarter decline in the first quarter, according to Ministry of Trade and Industry (MTI) flash estimates.

The MTI also compares quarterly figures with the same period a year earlier. On that basis, Singapore’s economy shrank 12.6 per cent in the second quarter.

These eye-watering levels of contraction are the highest recorded since the city-state became independent as the economic fallout from the Covid-10 pandemic battered Singapore’s trade-reliant economy.

The second quarter had been widely expected to record a sharp drop in growth given that the circuit breaker period covered two of the quarter’s three months: April and May. This is when the local economy came to a virtual standstill with shops and offices closed to curb the spread of Covid-19.

Economists say the economic contraction is likely to have reached its worst point in the second quarter, with the economy set to claw its way back to recovery from the current third quarter onwards.

The economy is still expected to keep shrinking — only not as dramatically, they added.

Still, some economists say they would not be surprised if the labour market continues weakening with retrenchments and wage cuts to continue or perhaps even increase over the next two quarters.

The MTI figures show that the number of jobs, excluding those held by foreign domestic workers, fell by 25,600 in the first three months of this year — the biggest quarterly contraction on record.

Selena Ling, head of treasury research and strategy at OCBC bank, said the real test of Singapore’s labour market will be seen only in the fourth quarter of 2020 or the start of next year.

This is because most of the Government subsidies introduced to ease the economic fallout of Covid-19 would have ceased during the third quarter.

The last payout of government wage subsidies, known as the Job Support Scheme, will be in October this year.

The rental waiver for small- and medium-sized businesses will also end in July.

"(The Government support measures) prevented a much bigger fallout in the labour market,” said DBS Bank senior economist Irvin Seah.

"Despite the fairly benign job losses figure in the first quarter, I think the second quarter and going forward, we will see sharp deteriorations in the labour market,” he said.

 Seah added that significant falls in income are to be expected as some companies, while stopping short of laying off workers, have required them to go on no-pay leave or have cut their salaries.

He explained that companies typically tend to be more cautious in hiring even though growth has picked up, as they want to be certain that their revenue stream is on a steady path first before adding staff.

This contributes to what economists call the lag effect of the labour market.

Brian Tan, an economist from Barclays Bank, said that consumer demand would likely not have returned to levels before Covid-19 despite moves to open up the economy gradually.

Restaurants, for example, are still not allowed to operate at full capacity due to social distancing measures.

"Companies need to assess what is the right level of staffing and costs they need to bear to operate in an optimal manner in the next six to 12 months,” he said.

Another worry is that consumers are not going out to spend.

Ling noted that some overseas jurisdictions such as Hong Kong have had to roll back some of their measures to open up the economy as more Covid-19 outbreaks emerged.

She noted that some Singaporeans may be concerned over a potential second wave of infections, given the higher number of Covid-19 community cases as the city-state continues easing restrictions in the second phase of its circuit breaker exit.

Ling questioned whether the momentum from the pent-up consumer demand that was observed when Singapore exited from the circuit breaker would continue.

She said that the "novelty value” of some retail and other outlets reopening is now gone and that people are becoming more cautious.

To prevent greater fallout in the labour market,  Seah suggested that some of the government support measures should be extended, but only to sectors particularly hit hard by the pandemic. — TODAY