Singapore sees third straight quarterly GDP contraction, but signs point to recovery

The Kampong Glam area of Singapore. The country’s economy could be showing signs of life, with third-quarter GDP increasing slightly from the second quarter.
PHOTO: Facebook/Commercial Shophouse - Kampong Glam

Singapore’s export-focused economy recorded its third consecutive year-on-year decline in the third quarter, the country’s trade ministry said on Wednesday, with the milder contraction in comparison with the first two quarters possibly pointing to the city state’s recovery from the economic fallout caused by the coronavirus pandemic.

Even so, analysts predicted Singapore would likely only see positive economic growth next year, warning that other countries in the region are still grappling with fresh waves of infections and newly implemented lockdowns.

The economy, often seen as a bellwether for the region, contracted 7.0 per cent year on year in the third quarter, the Ministry of Trade and Industry (MTI) said in its estimates, but grew 7.9 per cent on a quarterly, seasonally adjusted basis.

“The improved performance of the Singapore economy in the third quarter came on the back of the phased reopening of the economy following the Circuit Breaker,” said the ministry, referring to its two-month partial lockdown from April to June.

The growth from the second quarter was also attributed to the performance of the country’s manufacturing sector, which grew by 2 per cent in the third quarter on a year on year basis, reversing from the 0.8 per cent contraction in the previous quarter.

The sector’s growth was supported by “robust global demand” for semiconductors and semiconductor manufacturing equipment, it said.

Meanwhile, the Monetary Authority of Singapore said in its semi-annual monetary policy statement on Wednesday that it would keep its monetary policy unchanged. “As core inflation is expected to stay low, MAS assesses that an accommodative policy stance will remain appropriate for some time,” the central bank said.

The ministry had earlier forecast that GDP for the full year would show a contraction of 5 per cent to 7 per cent, following four revisions.

Singapore has recorded nearly 58,000 coronavirus infections, with about 99 per cent of the cases reported as recovered.

The country lifted its two-month partial lockdown, or so-called circuit breaker, in June, and it has since embarked on a three-phase resumption of activities. Its latest move saw more employees being allowed back to the workplace, with work-related events, such as seminars and meetings, now permitted.

Analysts were careful not to read too much into the trade ministry’s outlook for economic recovery, with Selena Ling, head of treasury research and strategy at OCBC Bank, noting that it would likely not be until next year that the city state climbs out of negative GDP territory.

Ling added that Singapore’s economic prospects would largely depend on how other countries in the region are coping with the virus, given Singapore’s economic ties with those countries.

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China , for one, seems well on track to recovery. Its GDP expanded 3.2 per cent in the second quarter, reversing the 6.8 per cent first-quarter contraction, with analysts now predicting that it will be one of the few nations to record positive full-year growth.

Lee Ju Ye, an economist with Maybank Kim Eng, said that China‘s faster-than-expected recovery was a positive sign for Singapore.

The country’s non-oil domestic exports to China, for example, jumped to the highest monthly level in August, driven by both electronics and non-electronics goods.

But Lee also said that the impact of China’s recovery on Singapore could still be limited, as leisure travel by Chinese – who make up a large slice of Singapore’s tourist pie – remains restricted.

Ling of OCBC Bank said that because China is one of Singapore’s key trading partners and investment destination, “a stable China recovery story would bode well in general for regional trade and growth”.

“But I think we also need to take the view that it is not just about China alone – the global demand story is also very important,” she added.

Growth in the Eurozone , for example, has been slowed considerably by the coronavirus pandemic, she said. Closer to Singapore’s shores, Malaysia and Indonesia seem to still be in the heat of the coronavirus pandemic and the related economic fallout.

On Monday, Malaysia announced tighter restrictions on regions including Sabah, Kuala Lumpur, Selangor and Putrajaya, while Indonesia is still recording thousands of new infections each day.

“I think it‘s a very fluid situation now. Until you get a vaccine and an effective deployment of the vaccine, you are going to get these waves of ups and downs in terms of infections … and in turn, it will be weighing on business and consumer confidence” in Singapore, Ling said.

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Lee agreed that the situations in Indonesia and Malaysia could weigh on Singapore‘s economic recovery, which border openings likely further delayed, exacerbating the challenge of foreign worker shortages.

Stringent lockdowns in neighbouring countries could also disrupt supply chains and trade, she said.

Ling also cited other external factors at play, including the looming US presidential election in November. Market watchers, she said, are expecting a “blue wave”, where Democrats, led by presidential contender Joe Biden, take control of the House and Senate.

“In that case, the likelihood of a US fiscal stimulus, for instance, appears to be higher,” she said, adding that it could bode well for countries in the region, including Singapore.

“People also view Biden as slightly less antagonistic towards China, so on the trade side, that could potentially have a slight, positive effect.”

This article was first published in South China Morning Post.