Coronavirus: DBS expects Singapore's GDP to shrink by 5.7% this year

It also expects country's retrenchments to cross 45,000 as pandemic fallout takes its toll

Retrenchments may spike to 45,600.
Retrenchments may spike to 45,600.ST PHOTO: LIM YAOHUI

Singapore's decision to keep a large segment of its economy closed and many of its residents at home for another month will lower economic growth and raise job losses, said analysts.

DBS Bank became the latest to cut its estimates of how Singapore's gross domestic product and employment would pan out this year, after earlier downgrades by OCBC Bank, UOB Group and Maybank.

DBS now expects the economy to shrink 5.7 per cent this year, a far steeper fall than the 2.8 per cent drop it had predicted earlier.

Retrenchments may spike to 45,600, far higher than in any of the past recessions, while the resident unemployment rate could rise to a seasonally adjusted 4.2 per cent, said the bank.

Should Singapore fail to contain the outbreak by the end of the circuit breaker on June 1, GDP could shrink by as much as 7.8 per cent, said the bank's senior economist Irvin Seah in a report yesterday.

The circuit breaker was extended after a spike in infections at dormitories housing foreign workers, pushing the number of Covid-19 cases in Singapore to the highest in South-east Asia.

The tighter new measures will take a heavier toll on businesses already struggling with poor earnings and weak cash flows, DBS said.

The Government has offered more help to businesses and their employees, taking the total fiscal response to the pandemic to $63.7 billion.

Without government help, the economic pain could have been even more acute, Mr Seah noted, adding that services and construction are two sectors that will be hardest hit by the circuit breaker extension.

"The extension to June 1, though necessary to contain the outbreak, will be a nail in the coffin for many locally oriented industries, for example, construction, retail, F&B, business services."

The relief measures will help, but some businesses on a weaker financial footing may not survive this crisis - implying a spike in companies folding up, bankruptcies and job losses ahead, Mr Seah said.

Though resident workers account for about 62 per cent of the total workforce, DBS senior economist Irvin Seah said, proportionately fewer local workers are likely to be retrenched on account of policy measures aimed at safeguarding their jobs.

Companies may have to shed more headcount to bring manpower costs in line with the fall in earnings, he added.

Though resident workers account for about 62 per cent of the total workforce, he said, proportionately fewer local workers are likely to be retrenched on account of policy measures aimed at safeguarding their jobs. He added that while foreign workers will account for the bulk of the retrenchments, resident unemployment will still rise.

DBS Bank's GDP growth estimates for the year are now lower than government guidance of minus 4 per cent to minus 1 per cent.

As for other banks' GDP predictions, some are more dire than DBS' while others are rosier. OCBC expects Singapore to suffer an even more severe recession. Ms Selena Ling, its head of research and strategy, said a contraction of 6 per cent to 10 per cent cannot be ruled out.

The bleaker end of the range assumes that a recovery may be delayed as business and consumer confidence remains dented into the third quarter and any second-half stabilisation is even more subdued than earlier expected, she said.

UOB economist Barnabas Gan downgraded Singapore's growth to minus 4 per cent, down from a previous estimate of minus 2.5 per cent. Maybank has cut its GDP forecast for this year to minus 7 per cent, from minus 6 per cent, due to the extension of the circuit breaker.

It sees a much larger impact on employment, with job losses expected to reach 200,000. More than half of those losses will be borne by foreigners, Maybank analyst Chua Hak Bin said last week.

A version of this article appeared in the print edition of The Straits Times on April 28, 2020, with the headline 'DBS expects Singapore's GDP to shrink by 5.7% this year'. Subscribe