Singapore's economic decline seen slowing in third quarter, central bank on hold

People walk at the central business district, amid the coronavirus disease (Covid-19) outbreak, in Singapore on July 14, 2020.
PHOTO: Reuters

SINGAPORE - Singapore’s economic decline is expected to have slowed significantly in the third quarter as the city-state loosened coronavirus curbs, giving the central bank room to keep monetary settings unchanged when it meets next week.

Gross domestic product (GDP) is expected to contract 6.8 per cent from the same period a year earlier, according to the median forecast of 11 economists in a Reuters poll, marking the third straight quarter of decline.

The economy had shrunk 13.2 per cent in April-June - its worst performance on record as the country went into lockdown.

GDP may jump 35.3 per cent on a quarter-on-quarter seasonally adjusted and annualised basis in July-September, the poll showed, picking up from a 42.9 per cent plunge in the second quarter.

“We expect a rebound from the second-quarter lows as economic activities partially resumed from June, although some restrictions remain,” said Jeff Ng, senior treasury strategist at HL Bank.

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All 14 economists polled by Reuters forecast the Monetary Authority of Singapore (MAS) will keep its exchange-rate based policy on hold at its review on Oct 14.

However, while economists say the worst is over for the economy, they expect the recovery to be sluggish, and see fiscal policy as the main driver of any rebound.

The MAS in March delivered its biggest easing move since the 2009 financial crisis, by flattening the band’s rate of increase and effectively shifting its centre lower.

The government has spent about $100 billion (S$135 billion), or 20 per cent of its GDP, in virus-related relief to support households and businesses.

Still, the small and open economy is officially expected to contract 5 per cent-7 per cent this year in its worst recession, while the unemployment rate in August touched its highest since the middle of 2004.

“We are recovering but so far still a partial recovery and the road forward is probably going to be quite gradual and pretty volatile, depending on how the situation pans out globally and domestically,” said Brian Tan, regional economist at Barclays.