Singapore economy forecast to shrink by 2%: StanChart

Standard Chartered Bank has joined the chorus of those downgrading Singapore's economic outlook for the year and tipping it to slide into a recession.

The bank expects the economy to shrink by 2 per cent because of the impact of the coronavirus pandemic.

The forecast was cut from an earlier projection of an expansion of 0.8 per cent.

Banks including DBS, ANZ and Maybank have recently cut their forecasts of Singapore's gross domestic product (GDP) growth and they see the economy posting its first full-year recession since 2001.

It's not just banks. Even credit rating agency S&P Global expects Singapore's GDP to contract, along with other Asia-Pacific economies including Hong Kong, South Korea and Japan.

The Republic has forecast a contraction of between 0.5 and 1.5 per cent for this year.

In a research report issued yesterday, StanChart said: "The widening coronavirus outbreak globally and increasingly strong, but necessary, containment measures worldwide have resulted in a sharp downgrade to our global growth projections."

The containment measures that may hurt growth in Singapore include the recent restriction of all short-term visitors from entering or transiting via Singapore, and Malaysia's travel and movement restrictions, StanChart analysts Edward Lee, Divya Devesh and Jonathan Koh wrote in the report.

The collapse in oil prices and ongoing financial market volatility will also negatively impact relevant sectors in Singapore, the report said.

Oil prices have dropped by about 50 per cent from US$50 per barrel on March 6 when an oil production deal between Saudi Arabia and Russia collapsed.

Meanwhile, stocks and bond markets have been swinging wildly as countries impose lockdowns to contain the spread of the coronavirus.

In response to the crisis, StanChart expects the Monetary Authority of Singapore (MAS) to ease its policy stance by allowing the local dollar to depreciate.

"We now expect the MAS to shift the slope of the Singapore dollar nominal effective exchange rate (S$Neer) policy band to flat from plus 0.5 per cent per annum currently and also re-centre the S$Neer policy band lower," the bank said.

It also expects the MAS to shift the centre of its policy band to the prevailing S$Neer level, now estimated at about 1.7 per cent below the middle of the band.

The Singapore dollar is likely to depreciate to about 1.47 against the United States dollar and a re-centring lower of the policy band would open further room for S$Neer weakness in the coming months, it said.

StanChart has, however, raised its 2021 GDP growth forecast to 2.8 per cent from 1.9 per cent due to a more favourable base effect and considerable amount of fiscal and monetary stimulus implemented globally.

S&P Global Ratings estimates that economies across the Asia-Pacific face a permanent income loss of about US$620 billion (S$905 billion) from the Covid-19 outbreak.

This loss will be distributed across sovereign, bank, corporate and household balance sheets, S&P said in a press release yesterday.

It also expects unemployment rates to rise across the region.

In Singapore, the jobless rate may rise to 2.7 per cent, from S&P's estimate of 2.3 per cent last year.