Singapore braces for worst-ever recession as GDP set to fall 4-7pc

Singapore is bracing for the worst recession in more than 50 years with its GDP set to shrink by 4-7 per cent.

Cyclists pass the Marina Bay Sands hotel and resort in Singapore. Picture: AFP

Singapore is bracing for the worst recession in more than 50 years after its Trade Ministry projected the city state’s gross domestic product would shrink by between 4 and 7 per cent this year.

The bellwether Southeast Asian economy downgraded its official outlook on Tuesday, from a previous estimated contraction of between 1 and 4 per cent, and warned of job losses ahead as the fallout from the COVID-19 pandemic continues to pummel the prosperous city state.

The grim forecasts have forced the government to dip into Singapore’s Past Reserves — a national wealth fund believed to amount to hundreds of billions of dollars — for the third time this year to help prop up Singaporeans and businesses stricken by lockdown measures taken to curb the spread of COVID-19.

Singapore will begin a phased loosening of its two-month “circuit-breaker” restrictions from June 2 to help kick-start an economy battered by supply chain restrictions and a second and third wave of infections that forced the government to lock down its economy as it fought to control COVID-19 clusters in crowded migrant worker dormitories.

Singapore has the region’s highest number of COVID-19 cases at 31,960, though one of the world’s lowest coronavirus mortality rates at 23.

“The decision to use our Past Reserves has not been an easy one — we deliberated long and hard on this,” deputy Prime Minister and Finance Minister Heng Swee Keat said ahead of announcing on Tuesday the fourth stimulus budget this year, this one focused on measures to ameliorate expected job retrenchments.

It is only the second time the government has tapped its Past Reserves fund principal. The last time it did so was during the 2008-08 global financial crisis.

PWC Singapore deputy chairman Ong Chao Choon said using reserves to keep Singaporeans employed for the next eight to nine months would be “painful but not impossible”, and that foreign workers in the construction and services industry would likely be the first to lose their jobs.

“Singapore has the buffer to create jobs, but at the same time we can’t spend our way out of ­recession because the economy is so open and dependent on trade,” Mr Ong said.

Singapore’s GDP growth has averaged 7.7 per cent — among the world’s highest — since independence in 1965. But the impact of a two-month lockdown beginning on April 7, a steep slowdown in key markets, labour shortages and supply chain disruptions has underlined the open economy’s vulnerabilities.

The government has discussed freeing up business travel with countries such as Australia and South Korea but has not yet finalised any arrangements.

While a manufacturing boom in pharmaceutical and biomedical production helped minimise expected first quarter declines (to a 0.7 per cent year-on-year), analysts warned much worse was to come with a “significant deterioration in the second quarter”.

There have been similarly gloomy economic predictions elsewhere in the region, with China abandoning an annual growth target for 2020, India predicting its first GDP contraction in more than 40 years and Indonesia recording its weakest first quarter growth in two decades.

Singapore permanent secretary for trade and industry Gabriel Lim said the economic performance in the second half would “depend in part on whether we are able to continue to contain the domestic outbreak”.

“Disruptions to economic activity in major economies have been more severe than expected,” Mr Lim said. “There continues to be a significant degree of uncertainty over the length and severity of the COVID-19 outbreak, as well as the trajectory of the economic recovery.”