Economy watch: With hustings over and deepest economic plunge on record, time to get back to rebuilding the economy
After a week of intense hustings — mostly over online platforms — Singaporeans woke up to a familiar headline on the morning of July 11: the People’s Action Party (PAP) had once again formed the government.
The difference this time was that the Workers’ Party (WP) enjoyed a significantly expanded presence in the next Parliament with its record of 10 seats. Prime Minister Lee Hsien Loong, somewhat ruing over the 61.24% vote share — the second lowest level garnered — acknowledged the desire of many Singaporeans for more alternative voices. WP leader Pritam Singh maintained a cautious tone, invoking the analogy of “waking the sleeping giant”.
To Leonard Lim, the Singapore country director for regional consultancy firm Vriens & Partners, the results of the polls signal “a new normal in Singapore politics”. This shows that “the previous narrative of voters responding largely to bread-and-butter concerns may no longer hold water”. He adds: “It’s a much more sophisticated electorate, one that isn’t afraid to send a signal to the PAP about its displeasure over the government’s performance even when economic worries weigh heavily on their minds.”
Former PAP Member of Parliament (MP) Hong Hai, an adjunct professor at the Nanyang Technological University (NTU), shares similar sentiments. In an opinion piece published by The Straits Times, he calls the shift a “natural order of things”, which symbolises millennials and Generation Z’s want for a greater contest of ideas. He adds that the PAP will need to change its governing paradigm, to cope with “credible and well-meaning” alternative voices like WP.
Speaking at a press conference in the wee hours of July 11, Lee said the outcome of the polls was “not as strong a mandate as hoped for, but is still a good mandate”. Deputy Prime Minister Heng Swee Keat chimed in, saying the country will now continue its efforts towards strengthening Singapore’s economy. “The work of restructuring our economy, of transforming our industry must continue. The work of protecting jobs, saving jobs and creating new jobs must continue,” he added.
“I think it is important for us to continue to emphasise the fundamentals that we have and be able to enhance investor confidence,” said Heng. Both he and Lee noted that this also depends on the opposition being willing to work together with the government in the national interest. Pritam has accepted the new title of “Leader of the Opposition”, along with state-provided resources, so that WP can be more effective in playing the role of the loyal opposition for the common goal of a better Singapore.
Economic weakness
For the political leadership, the urgency of addressing the economic challenges can’t be more apparent. On July 14, the Ministry of Trade and Industry (MTI) released advance estimates of second-quarter GDP numbers showing a worse-than-expected 12.6% y-o-y slump, and a q-o-q plunge of 41.2%, due to the twomonth lockdown in April and May.
Now, with two straight quarters of q-o-q and y-o-y contraction, Singapore has entered both a technical and full-blown recession. This is also the deepest, and possibly longest, recession to boot.
Nevertheless, there are some faint glimmers. During 2Q2020, the external-oriented manufacturing sector was the only one to remain in positive terrain. The sector grew 2.5% y-o-y, albeit slower than the 8.2% expansion logged in the quarter before. A surge in output from the biomedical manufacturing cluster provided a substantial lift to the sector. However, this was mitigated by the weak external demand and workplace disruptions that put a dent on chemicals, transport engineering and general manufacturing output.
Hongkong and Shanghai Banking Corp economist Yun Liu calls manufacturing a “bright spot”. She adds: “The ongoing rebound in the electronics sector has been encouraging and it may continue.” Oversea-Chinese Banking Corp’s (OCBC) chief economist Selena Ling similarly notes that Purchasing Managers’ Index (PMI) readings had improved in May. This “reflects that global supply chain disruption has abated”, she says. To her, the litmus test for this will be the recovery in private consumption and services.
On the other hand, the services industry has suffered some serious damage. It was down 13.6% y- o- y in 2Q2020, steepening from 1Q2020’s 2.4% fall. This followed the standstill experienced by the external- facing sectors of tourism and air transport. On July 15, Genting Singapore, which had just started partial reopening of its Resorts World Sentosa on July 1, wielded the axe on an undisclosed number of workers, signalling that recovery of the tourism industry will not be immediate.
Other sectors such as wholesale trade and transport similarly took a hit from falling external demand. Back home, tills for retail, food joints and business services were under the weather as consumers tightened their pursestrings and could not actively patronise these stores during the “circuit breaker”.
To Vishnu Varathan, head of economics and strategy at Mizhou Bank, a services-led recovery may be rather atypical. This “may be dictated by unfamiliar dynamics that are frustratingly reliant on both external demand as well as sub- par domestic demand recovery that is hampered by the ‘ new norms’ of stricter distancing and containment”, he notes.
Meanwhile, construction was the hardest hit by measures, contracting 54.7% y-o-y, compared to 1Q2020’s 1.1% dip. The sector was weighed down by the stoppage of most construction activities and manpower restrictions, following the surge in the number of Covid-19 infections in migrant worker dormitories.
Explaining the methodology behind the 2Q2020 numbers, MTI says they are based largely on data from April and May. With Phase Two of reopening — which has seen the resumption of most services — having taken off earlier than expected on June 19, an upward revision is to be expected in the MTI’s updated figures in August, says DBS Bank’s senior economist Irvin Seah. He adds that the impact of the government’s stimulus packages “has yet to be fully captured” in the figures, as the full multiplier effect will be felt in the coming months.
Recovery or worsening recession?
Looking at the latest numbers, economists say 2Q2020 marks a trough. However, recovery will be slow and uneven. “Recovery in the second half will be dampened by the slow reopening, border controls, strict social distancing rules and foreign worker shortages,” say Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye. They expect smaller y-o-y GDP contractions of 7% in 3Q2020 and 4% in 4Q2020, such that the republic has a U-shaped recovery with positive growth starting from 1Q2021.
However, they foresee a return in GDP to pre-pandemic levels only in 2022. Such a situation will mark four consecutive quarters of y-o-y contraction, similar to that experienced in 1985 and during the Global Financial Crisis in 2008, they add.
HSBC’s Liu, meanwhile, is more optimistic. She expects a sharp 7.6% rebound in 2021, following, in part, strong growth in non-oil domestic exports. “From the outset, this will be a short recession,” she asserts. Her confidence stems from the strong fiscal support that “should prevent a sharp deterioration in the labour market, as seen elsewhere in the world”.
On how growth can resume, United Overseas Bank (UOB) economist Barnabas Gan has three suggestions: more business-friendly Phase Two and Three conditions, re-opening of tourist and hospitality venues, and continued support for pharmaceutical production and exports.
Even so, DBS’ Seah warns of a “jobless recovery”, where there is a lag between the labour market and the growth cycle. His concerns echo that of Patrick Tay, MP and assistant secretary-general of the National Trade Union Congress (NTUC). “Ahead of the second-quarter labour market figures which will be released end of this month, I expect there will be a sharp spike in retrenchments and unemployment figures,” he said in a Facebook post on July 14.
Much is at stake for the Singapore economy which has already had four unprecedented budgets amounting to $92.9 billion or some 20% of GDP. As such, Trade and Industry Minister Chan Chun Sing points to global demand for goods and services as the biggest uncertainty facing the country. After all, Singapore’s trade value is more than three times that of its GDP and fiscal measures alone will not be enough. “The uncertainties in global demand will dampen the demand for our products and services. Retrenchment is likely to rise. The urgency to help our businesses and workers is acute,” said Chan in a Facebook post on July 16.
Chan, citing a banner he saw — “Love All — Serve All” — says that with the elections over, and the spike in Covid-19 cases in some neighbouring cities, that is a stark reminder that there is a lot to be done. “Our focus must be to unite as a country to overcome the immense health and economic challenges facing us,” he says.