Singapore’s economy plunged into recession last quarter as an extended lockdown shuttered businesses and decimated retail spending, a sign of the pain the pandemic is wreaking across export-reliant Asian nations.
Gross domestic product declined an annualized 41.2% from the previous three months, the Ministry of Trade and Industry said in a statement Tuesday, the biggest quarterly contraction on record and worse than the Bloomberg survey median of a 35.9% drop. Compared with a year earlier, GDP fell 12.6% in the second quarter, versus a survey median of -10.5%.
The deep slump shows the blow Singapore’s economy is taking from all sides amid the pandemic. A plunge in global trade has hit the export-reliant manufacturing industry, while retailers saw a record decline in sales after partial lockdown measures were imposed last quarter. The government, which has projected a full-year economic contraction of 4%-7%, didn’t provide a new forecast Tuesday.
Singapore is one of the first countries to report quarterly GDP data, and the figures show it’s taking a bigger hit than many others in Asia. Japan’s GDP is seen declining more than 20% on an annualized basis in the second quarter from the previous three months, while data this week probably will show China’s economy returned to growth.
The dismal outlook in Singapore is pressuring the ruling People’s Action Party, which had its weakest performance ever in last week’s election. The government has already pledged about S$93 billion ($67 billion) in stimulus to shore up troubled businesses and households and prevent a surge in retrenchments.
“The road to recovery in the months ahead will be challenging,” Trade and Industry Minister Chan Chun Sing said in a Facebook post Tuesday. “We expect the recovery to be a slow and uneven journey, as external demand continues to be weak and countries battle the second and third waves of outbreaks by reinstating localized lockdowns or stricter safe-distancing measures.”
Other key details of Singapore’s GDP report:
- Manufacturing plunged 23.1% on a quarter-on-quarter, annualized basis, compared with growth of 45.5% in the first quarter. On a year-on-year basis, the sector grew 2.5%, mainly due to solid output in pharmaceuticals
- Construction was severely damaged by the lockdown restrictions, plummeting 95.6% on a quarter-on-quarter basis, and declining 54.7% year-on-year
- The services sector shrank an annualized 37.7% in the quarter, and 13.6% year-on-year. Tourism businesses, like airlines, hotels and restaurants, were affected by travel restrictions and the so-called “circuit breaker” measures from April 7 to June 1
Singapore’s advance GDP estimates are computed largely from data in the first two months of the quarter, and often are revised once the full quarter’s data are available.
The second quarter may mark the low point for the economy, although the recovery is likely to be slow and gradual. Most businesses began resuming operations from late June, but border controls and social-distancing rules, which limit mobility, remain.
“This is the bottom, unless Singapore is forced to regress to the harsher iteration of circuit-breaker measures,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The case for more stimulus is neither ruled out nor a mechanical reaction to this backward-looking data point. The four fiscal packages need time to permeate and cascade.”
Singapore’s dollar fell 0.2% to S$1.3930 against the U.S. dollar as of 1:35 p.m. local time. The Straits Times Index dropped as much as 1%, set for a third day of declines, its biggest losing streak since June 22.
Ho Meng Kit, head of the Singapore Business Federation, said the following two quarters will likely be better than the second quarter, although they’ll remain weak.
Even though the economy has opened up since early June, with retailers and restaurants resuming business, “they are not at the previous levels because there is still no tourism in Singapore,” he said in an interview on Bloomberg Television. “There will be an impact on demand, so these sectors will come in weak.”
Manufacturing performed better than many had expected compared to a year earlier, propped up by pharmaceuticals and a resilient electronics sector. Factory purchasing managers indexes show that manufacturing across Asia started to pick up at the end of the second quarter, as early phases of re-opening in many countries begin o revive demand.
On the monetary policy front, economists don’t see a strong chance of a move at the central bank’s next scheduled decision in October. The Monetary Authority of Singapore, which uses the currency rather than interest rates as its main tool, took unprecedented easing steps in March, reducing the slope of the exchange-rate band to zero.
“Given significant front-loading of fiscal and monetary policy, there is a relatively high bar for additional stimulus from here,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. She expects the economy will contract 5.5% for the full year.