SINGAPORE (BLOOMBERG) - Singapore will witness a deeper recession this year after the nation extended and tightened its partial lockdown, Citigroup warned, widening its forecast for an economic contraction.
The city-state's economy will contract by 8.5 per cent in 2020, down from an earlier estimate of a 6 per cent fall, economists Kit Wei Zheng and Ang Kai Wei wrote on Tuesday (April 21) after Singapore extended "circuit breaker" measures until June 1 to "decisively" bring down coronavirus cases within the community.
"The circuit breaker would cause close to 25 per cent-30 per cent of gross domestic produt (GDP) to come to a standstill, with every month of extension further reducing 2020 GDP by 2 per cent to 2.5 per cent," the economists wrote. "The technical rebound after the lifting of the circuit breaker on 1st Jun will be capped by continued social distancing and only gradual recovery in exports."
Initially seen as a global model for how to contain the pandemic, Singapore now has the most cases in South-east Asia as Covid-19 spreads quickly in densely packed dormitories housing foreign workers.
The economists warned of further downside risks to their outlook, given that the steps announced on Tuesday will bring most construction activities to a standstill and more services will be restricted or suspended.
Any further cut to GDP forecasts for this year or next raises the odds that the Monetary Authority of Singapore will again ease policy by lowering the currency's trading range at its October meeting, the economists wrote. The de facto central bank, which uses the exchange rate as its main policy tool, took unprecedented easing steps in March by allowing for a weaker exchange rate to support the export-reliant economy.
The government also pledged $3.8 billion in additional fiscal stimulus on Tuesday, bringing the total stimulus offered to more than $60 billion.