2020 was said to be a year of recovery, but the virus had other plans
The year 2020 was not just meant to mark the start of a new decade; it was expected to be a year of recovery for the global economy which had been weighed down by uncertainties such as the US-China trade war and shifting supply chains. According to the International Monetary Fund (IMF) at the end of 2019, global GDP growth was to pick up from 2.9% that year to 3.3% this year and a further 3.5% in 2021.
However, the Covid-19 pandemic has thrown all these predictions out of the window as the world deals with this health crisis. As at Dec 9, there have been 68 million confirmed cases and some 1.6 million deaths around the world. “This is a crisis like no other,” said IMF’s economic chancellor Gita Gopinath in April. Since then, the macroeconomic watchdog has revised its forecast of global GDP for 2020 to a 3.5% contraction.
Governments and central banks around the world have responded to the crisis with massive fiscal stimulus and the loosening of monetary policy. The IMF estimates the global average fiscal deficit will widen by 8.8% to 12.7% of GDP this year. What this means is that the fiscal impulse — or the change in government budget — will come in at around 6.4% of the potential global GDP. By contrast, this number was 1.8% during the height of the Global Financial Crisis (GFC) in 2009.
Signs of weakness
Just like the rest of the world, Singapore’s economy is also reeling from the pandemic, with around 58,000 cases and 29 deaths as at Dec 9. Singapore too was slated to see a pickup, with a 2020 growth rate of 1% to 2%, from 0.9% logged in 2019. Official estimates now put 2020’s contraction at between 6% and 6.5%.
The contraction of 0.3% at the start of the year in 1Q2020 barely scratches the extent of the damage. The following quarter, ended June, saw GDP plunge by an eye-popping 42.9% q-o-q and 13.2% y-o-y, as large parts of the economy crumbled during the lockdown between April and May (see “Singapore GDP” chart).
As businesses reeled from the body blow, total employment (excluding foreign domestic workers) plunged by 103,500 in June — Singapore’s largest quarterly contraction since the 24,000 logged in June 2003 at the height of the SARS pandemic. Unemployment rates similarly rose to 2.8% in June, up from 2.4%. This falls short of the 4.8% registered during the SARS pandemic in 2003 and the 3.3% during the Global Financial Crisis in September 2009.
The lifting of the “circuit breaker” measures on June 19 brought a much-needed boost to the ailing economy, as previously banned activities such as dining-in are now allowed, albeit with certain restrictions. For the quarter ended September, GDP dropped by 5.8% y-o-y — still a contraction but nonetheless a significant improvement. While certain industries such as retail, hospitality and construction remain in the doldrums, manufacturing helped drive growth, with demand for electronics and pharmaceuticals staying strong.
Wholesale trade and transport and storage sectors, meanwhile, continue to feel the effects of disrupted supply chains and slowing economies of key trading partners, although tentative signs of recovery are seen. Even so, Enterprise Singapore, which tracks Singapore’s trade flowss expects non-oil domestic exports (NODX) — a key measure — to grow between 4 and 4.5% this year, an improvement from the contraction of between 4 and 1% it had previously expected. In the coming year, NODX is seen staying roughly even keel at 0 to 2%.
Meanwhile, the labour market has also been showing signs of picking up, with total employment shrinking by 26,900 — a significant improvement from the historic plunge in 2Q2020. As at September, resident employment stood at 2.34 million, recovering from 2.29 million in June and inching closer to the 2.36 million pre-Covid-19 level seen in December 2019.
Still, the seasonally-adjusted unemployment rate edged up to 3.6% in September, deteriorating from the 3.4% registered in August (see“Unemployment levels” chart). This translates to 112,500 unemployed residents in September, of which 97,700 were citizens. Unemployment among both residents and citizens rose, with resident joblessness hitting 4.7% in September, from 4.6% the month before. Citizen joblessness similarly inched up to 4.9% in September, from 4.7% in August.
Impact of fiscal packages
Despite various signs of a pick-up in Singapore’s economy in 3Q2020, a return to pre-Covid-19 levels by the end of 2020 is impossible. In fact, the republic is looking at its worst recession since independence with official GDP forecast to fall between –6.5% and –6%, albeit a marginal improvement from the –7% and –4% contraction predicted previously.
The last time Singapore posted a full-year economic contraction was after the dotcom bubble burst in 2001, when the economy shrank by 1.1%. Singapore’s worst recession to date was the 2.2% drop during the 1997 Asian Financial Crisis (AFC).
Now, what makes 2020 memorable isn’t just the economic woes, but how the government has dealt with it via an unprecedented close to $100 billion rescue and support “bazooka” package announced over four key instalments. Dubbed “Unity”, “Resilience”, “Solidarity” and “Fortitude”, the packages symbolised the traits and aid Singapore needed to tide through the crisis, according to Deputy Prime Minister Heng Swee Keat. The impact of the packages was later quantified by the government at 5.5% of the economy in 2020.
The key feature of the packages is the Jobs Support Scheme (JSS), where the government co-pays the wage bills of 140,000 companies for the 1.9 million Singaporeans under their head count. The harder-hit sectors, such as aviation, received heftier subsidies of up 75% at one point, while those less so, such as the financial services and technology sectors, make do with a fraction of that.
The government has warned early on that this support is not indefinite, with the last tranche of payments to be made in March 2021. Even so, economists such as Song Seng Wun of CIMB Private Bank have given this scheme the thumbs-up for blunting
further job cuts effectively. “Even though some businesses have been laying off and the monthly jobless rate has increased, the numbers have levelled off and could have been higher if not for the JSS,” he tells The Edge Singapore. He adds that the tiered, calibrated approach ensures that all businesses, especially those in the aviation and hospitality sectors that have been more affected by the pandemic, get the help they need.
Besides the JSS, other support measures include a Covid-19 Support Grant for Singaporeans who are unemployed or have suffered significant income loss, till December. The government is also studying how to continue supporting employees and self-employed persons. For example, more workers became eligible for the $3,000 Workfare Special Payment.
In another way to hold up employment, the government is also allocating a $1 billion Jobs Growth Initiative to encourage firms to hire more, with a co-payment of up to 25% of salaries of new local hires for a year. In recognition of the greater reluctance of employers to hire older workers, the co-payment for those aged 40 and above will be up to 50%. Sector-specific help has also been extended, such as the $187 million Enhanced Aviation Support Package.
Heng believes that in the longer term, Singapore must position itself to seize opportunities beyond a Covid-19 world. To facilitate this, up to $150 million has been set aside to enhance the Startup SG Founder programme to help turn ideas in smart commerce and supply chain digitalisation into commercially viable entities.
Another bazooka in 2021?
In the coming year, Singapore’s economy is expected to exit its worst recession on record with a growth rate between 5% and 5.9%, according to responses logged by 23 economists and analysts in a survey by the Monetary Authority of Singapore (MAS).
With Singapore entering the new year with the start of Phase Three of its re-opening, this seems more plausible. Even so, it will also be coming off from the low base of 2020. Four out of five of the economists cite the availability of a Covid-19 vaccine as the top propeller of recovery in 2021.
According to Irvin Seah, senior economist at DBS Bank, the emergence of several vaccine candidates, with projections of higher-than-expected production capacity, has added optimism that the end of this pandemic can possibly come earlier. “The more clarity we get on vaccination, the stronger the optimism would be,” he says.
To Eugene Tan, law don at the Singapore Management University (SMU), the availability of a vaccine will bring relief to sectors such as aviation and tourism — depending on their effectiveness and whether sufficient people around the world will be vaccinated to create herd immunity. “It is a shot in the arm, but it is also important not to have exuberant hopes that the vaccines will be the silver bullet,” he tells The Edge Singapore. Instead, Tan suggests that it be treated “as one arrow among several in policymakers’ quiver”, with the others being enhancing contact tracing capabilities, beefing up resources in the healthcare sector, and making safe distancing an acceptable norm.
Other key areas of growth reflected in MAS’ survey was the possibility of an upswing in the electronics cycle and the pace of recovery in other regional economies such as Malaysia, Indonesia and China. Along with this, the market-watchers note that the reopening of borders to international travel is a potential upside to growth. However, Seah cautions that travel restrictions would be among the last of curbs to be lifted and may not be a huge contributor to growth next year.
Meanwhile, MAS’ survey also flagged two key concerns: a deterioration in the Covid-19 situation and the possibility of mounting trade tensions between the US and China.
As such, even with the anticipated recovery, market watchers caution that more help will be needed to tide businesses and consumers in the coming months. The way they see it, an expansionary budget, where the government spends more than it collects, will be an effective remedy. “People will only hire when they see a sustainable recovery. So, more fiscal sup- port will be needed for the economy and labour market to expand,” explains CIMB’s Song.
Selena Ling, who heads the treasury research and strategy department of OCBC Bank, agrees, noting that “the worst is over, but it is a potentially long and challenging road”. She too expects policy accommodation to “remain expansionary”, albeit at a more modest scale “given the high bar set in 2020”. The upcoming package will prioritise jobs and livelihoods while positioning the economy for a post-Covid future through digitalisation and the set-up of new growth areas and industries, mulls Ling.
And help is on its way in Budget 2021, which is scheduled for February, according to Transport Minister Ong Ye Kung. “Definitely you’re going to see more fiscal policies coming into play to help uplift the economy during this time,” he said in an interview with Bloomberg TV, adding that Singapore is “still in a fairly deep recession”.
In terms of the cost of the measures, Maybank Kim Eng’s senior economist Chua Hak Bin reckons that it will be at 4% of GDP, compared to 15% in 2020. For now, he, along with Song and SMU’s Tan, do not foresee an increase in GST or other taxes in the next year, to finance these measures. “Taxes cannot be increased when the economy is still recovering, and that is only expected in 2022 or at best 2023, depending on how the economy grows,” estimates Song.
Given the uncertainty in the global economy, how big a rebound Singapore will see in 2021 is hard to predict. But, what is sure is that the lessons brought from 2020 will be long-lasting and may well mark the start of a new decade-long push towards digitalisation and the exploration of new growth verticals, as unexpected as it may be.
