SINGAPORE - Singapore's economy shrank by 12.6 per cent year on year in the second quarter, according to advance estimates from the Ministry of Trade and Industry (MTI) on Tuesday (July 14), as circuit breaker measures to stem the coronavirus pandemic took their toll.
The decline in gross domestic product (GDP) is worse than the 10.5 per cent drop economists had anticipated in a Bloomberg survey. It is also much worse than in the first quarter when GDP turned negative for the first time in a decade, with the economy contracting by a revised 0.3 per cent.
MTI said the GDP plunge was due to the circuit breaker measures that were implemented from April 7 to June 1 to slow the spread of Covid-19, as well as weak external demand amid a global economic downturn.
On a quarter-on-quarter basis, the economy shrank a record 41.2 per cent in the three months to June - entering a technical recession for the first time since 2009. A technical recession refers to two straight quarters of quarter-on-quarter contraction.
Trade and Industry Minister Chan Chun Sing said the numbers show the extent of the challenges facing Singapore amid the pandemic and the effort required to restore the economy, adding that the figures were expected.
"The road to recovery in the months ahead will be challenging. We expect 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 localised lockdowns or stricter safe distancing measures," he said in a Facebook post.
Domestically, the pace of recovery will also depend on how well Singapore manages the public health situation and succeeds in keeping infections in the community low, he noted.
NTUC Assistant Secretary-General Patrick Tay in a separate Facebook post said the report "paints a sombre and worrying outlook for the Singapore economy for the rest of 2020".
Calling on Singapore workers to brace themselves, Mr Tay said he expects "a sharp spike in retrenchments and unemployment figures as well", ahead of second-quarter labour market figures to be released at the end of this month.
MTI in May forecast a full-year contraction of 7 per cent to 4 per cent - making the current recession Singapore’s worst-ever since independence in 1965.
The second-quarter slump was led by the construction sector that shrank by 54.7 per cent on a year-on-year basis, a significant deterioration from the 1.1 per cent decline in the first quarter.
“Construction output weakened on account of the circuit breaker measures which led to a stoppage of most construction activities during the period, as well as manpower disruptions arising from additional measures to curb the spread of Covid-19, including movement restrictions at foreign worker dormitories,” MTI said.
On a quarter-on-quarter basis, the construction sector shrank by 95.6 per cent in the second quarter, far worse than the 12.2 per cent contraction in the first three months.
The services-producing industries contracted by 13.6 per cent on a year-on-year basis in the second quarter, steeper than the 2.4 per cent decline in the previous quarter.
The only bright spot in the economy was the manufacturing sector that grew by 2.5 per cent year on year in the April to June period. However, the growth was slower than the 8.2 per cent pace achieved in the first quarter.
Manufacturing growth during in the second quarter was primarily aided by a surge in biomedical manufacturing. Still, weak external demand and workplace disruptions during the circuit breaker period weighed on output in the chemicals, transport engineering and general manufacturing clusters, MTI said.
On a quarter-on-quarter basis, the manufacturing sector shrank by 23.1 per cent, a sharp reversal from the 45.5 per cent expansion in the preceding quarter.
The advance estimates for the second quarter are largely based on data from April and May, coinciding with the two-month-long circuit breaker measures.
Singapore started to relax the circuit breaker measures on June 1 and entered phase two of economic reopening on June 19, allowing most retail shops and restaurants to resume business while observing social distancing measures.
Revised second-quarter estimates - to be released in August - are likely to reflect the impact of the reopening.
“The worst is likely over,” said Ms Selena Ling, head of treasury research & strategy at OCBC Bank.
She said with the GDP already compressed by 6.5 per cent in the first six months, some stabilization may start to emerge from the third quarter onwards. However, growth will remain in the negative territory through the year.
Mr Irvin Seah, senior economist at DBS Bank, said private consumption that had collapsed amid the circuit break period has started to recover. On top of that the unprecedented fiscal measures, in the form of four stimulus packages in four months, would also start to show up in GDP.
Ms Ling said that given the significant front loading of fiscal and monetary policy, there is a relatively high bar for additional stimulus. However, some of the budget measures targeting jobs may potentially be extended if the Singapore labour market continues to soften further, she added.
OCBC expects full-year GDP to contract by 5.5 per cent, while DBS predicts a 5.7 per cent slump.