Singapore recovery from downturn to take 18 months, twice as long as earlier recessions, say economists

Singapore's economy has rebounded somewhat since its second quarter low point, but economists expect recovery to flatten in the months ahead. — TODAY pic
Singapore's economy has rebounded somewhat since its second quarter low point, but economists expect recovery to flatten in the months ahead. — TODAY pic

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SINGAPORE, Oct 29 — Economists expect the economy to take at least six quarters — 18 months — to recover from the current downturn, double the time it took in previous recessions.

The Singapore economy took three quarters to recover from its worst to pre-crisis levels in past recessions, said the Monetary Authority of Singapore (MAS) in its twice-yearly macroeconomic review.

Yesterday, the MAS review noted that the current downturn caused by the Covid-19 pandemic is unlike in previous crises, where the pace of recovery largely follows the rate of decline, resulting in what economists call a V-shaped recovery.

While Singapore’s economy rebounded in the third quarter of this year from its worst slump on record in the second quarter, MAS said this relative upswing was largely driven by the city-state’s exit from the circuit breaker.

It added that “the momentum is unlikely to be sustained in the subsequent quarters.”

“Without wide-scale implementation of vaccination programmes in Singapore and globally, the threat of repeated outbreaks will continue to generate economic uncertainty, hampering a more decisive recovery. Thus, the recovery will likely be more prolonged than in previous recessions,” said MAS.

MAS said that growth momentum is likely to slow in the current fourth quarter and remain modest in 2021 as firms and households continue to be restrained by income loss.

“Some pockets of the economy are not expected to recover to pre-Covid levels even by the end of next year: In particular, activity in travel-related and some contact-intensive domestic services could still fall short of pre-pandemic levels until health risks abate,” said MAS.

Economists TODAY spoke to said recovery is likely to occur at the end of 2021, provided a vaccine becomes available early next year.

Instead of a V-shaped recovery, DBS Bank senior economist Irvin Seah said the recovery curve would be like the symbol for a square root, where the sharp rebound after the circuit breaker would taper off before it hits pre-crisis levels, and then flatten out.

Flash estimates from the Ministry of Trade and Industry (MTI) released on October 14 showed that Singapore’s economy contracted 7 per cent in the third quarter compared to a year earlier, a much slower pace of contraction compared to the second quarter.

The April to June quarter of this year bore the brunt of the economic fallout resulting from the Covid-19 pandemic, given that the circuit breaker months of April and May fell within that quarter.

Gross domestic product (GDP) output in that quarter contracted 13.3 per cent compared with a year earlier and plunged Singapore into its worst recession since its independence.

For the whole year, Singapore’s economy is expected to shrink between 5 and 7 per cent based on MTI forecasts.

MAS, however, noted that the contraction could have been worse if not for the various stimulus measures rolled out by the government totalling S$100 billion (RM306.1 billion).

The fiscal injection, along with its multiplier effect as the cash ripples through the economy, is projected to offset GDP contraction by 5.6 per cent in 2020, and 4.8 per cent in 2021.

The resident unemployment rate, which stood at 4.5 per cent in August, would have been 1.7 percentage points higher this year without these measures, especially jobs-related assistance such as the Jobs Support Scheme which subsidises workers’ wages.

MAS also said that monetary policies will help shave off the level of economic contraction by 1.1 per cent in 2020 and 0.8 per cent in 2021.

Both monetary and fiscal policies would have helped Singapore reduce its economic contraction by 6.7 per cent in 2020 and 5.6 per cent in 2021, noted MAS. Monetary policy refers to the way the MAS manages the value of the Singapore dollar relative to the currencies of its trading partners. — TODAY

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