Temporary Covid-19 curbs will not derail Singapore's recovery, say economists

Barring the re-imposition of a strict circuit breaker, most economists believe the economic damage will be limited.
Barring the re-imposition of a strict circuit breaker, most economists believe the economic damage will be limited.ST PHOTO: LIM YAOHUI

SINGAPORE - A new wave of Covid-19 in Singapore may have dented investor sentiment but economic damage will depend on how long the renewed mobility curbs last, analysts said.

A rise in local cases, since the recent discovery of a cluster at Tan Tock Seng Hospital, some infected with a variant of the coronavirus identified in India, has dragged the local stock market's benchmark Straits Times Index down to its lowest levels in about six weeks.

Reflecting the concern among investors, the bourse had its fourth consecutive day of losses after the Government on Tuesday (May 4) evening decided to implement for three weeks measures to restrict social mobility - effectively ending phase three of the reopening of the economy after just four months.

The STI closed 0.8 per cent down at 3,153.59 on Wednesday with Singapore Airlines and ComfortDelGro among the decliners. This is the lowest level since March 25, when the index ended at 3,141.71. 

The curbs will have a negative impact in the near term on retail mall real estate investment trusts such as Mapletree Commercial Trust, Lendlease, Starhill, Frasers Centrepoint Trust, and leisure firms like Genting, said DBS Bank in a note on Wednesday. 

However, stocks in supermarket operator Sheng Siong and food producer Dairy Farm will rise as they are seen as beneficiaries of the mobility restrictions, it added. 

Education Minister Lawrence Wong, who will be Singapore’s next finance minister, warned that the Government would not hesitate to take even more stringent measures and did not rule out another circuit breaker like the one that sent the economy into a record recession last year.

But Mr Wong balanced his warnings by describing the latest measures as "an additional pre-emptive step" that was expected to bring the situation under control by end-May.

The stock market may remain volatile as investors switch their bets from vulnerable companies in the transport and retail segments to beneficiaries in sectors such as healthcare, supermarkets and food producers.

But, barring the re-imposition of a strict circuit breaker, most economists believe the economic damage will be limited.

Mr Euben Paracuelles, economist at Nomura International, said the impact from the latest curbs would depend on their duration and whether they are tightened further.

"We think these risks are mitigated in part by stronger contact tracing, testing and ring-fencing capabilities," he said.

Mr Paracuelles said there are also other mitigating economic factors.

"We think household consumption and, in turn, retail trade sectors should be more resilient, as consumers have adopted these restrictions and resorted to more online purchases, minimising the disruption," he noted.

Singapore's economic growth is highly dependent on its export industries - mainly grouped under manufacturing - which are likely to thrive as long as the country's key trading partners maintain their growth trajectories.

Mr Barnabas Gan, economist at UOB Group, said high-frequency data such as manufacturing and non-oil domestic exports supported the positive outlook.

"While outward-facing industries are expected to perform well on the back of a global recovery, the construction and services industries may continue to see headwinds on Covid-19 risks," he said.

The uneven recovery has been flagged by both the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS).

MTI has maintained its projection of 4 per cent to 6 per cent gross domestic product growth for this year, a steep rebound from the record 5.4 per cent contraction last year.

MAS has in fact indicated that growth may breach the higher end of MTI's forecast.

MAS also cited some evidence, based on its econometric analysis across countries in its April Macroeconomic Review, that the negative relationship between mobility restrictions and economic activity has weakened.

Nomura's Mr Paracuelles said that manufacturing, led by electronics and pharmaceuticals output, driven by improving external demand, would continue to strengthen.

Nomura will maintain for now its 2021 GDP growth forecast for a strong rebound to 7.5 per cent in the whole of this year. Mr Gan of UOB said his 2021 forecast also remains unchanged, at 5.5 per cent.

Ms Selena Ling, OCBC Bank's chief economist, said she would keep her forecast at 6 per cent, as the latest curbs are likely to be a temporary setback.