SINGAPORE: The month-long enhanced safe distancing measures, dubbed the “circuit breaker” by authorities here, could bring about more pain for an already-stalling Singapore economy, economists said.
Even with an unprecedented third support package now on the table, it may not be enough to nurse the fallout from temporary business closures and disruptions, and prevent further job losses, according to economists from four financial houses this week. One of them has slashed its forecasts for Singapore’s full-year growth.
“The disruptive nature of these most recent set of measures will incur additional economic pain,” said DBS senior economist Irvin Seah in a note on Tuesday (Apr 7).
“Beyond the negative shocks from an impending global recession, these additional measures will further compound the woes of many local companies and could potentially lead to further increase in job losses.”
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Most workplaces closed on Tuesday as the stricter safe distancing rules kicked in. Only essential services, such as food establishments, supermarkets and clinics, are open, although no dine-in is allowed at eating places. Schools will close from Wednesday and move to full home-based learning. These will last until May 4.
The heightened measures were announced by Prime Minister Lee Hsien Loong last Friday with the aim of curbing sharply-rising COVID-19 cases. As of Monday, the total number of cases since the outbreak started stood at 1,375.
Acknowledging the severe disruption on businesses and workers during the “circuit breaker” period, Deputy Prime Minister Heng Swee Keat on Monday announced a third round of support measures worth S$5.1 billion.
Called the Solidarity Budget, it included larger wage subsidies and foreign worker levy waivers for businesses in April, expanded scope for more self-employed people to claim income relief, as well as a S$600 cash payout for all adult Singaporeans.
READ: Solidarity Budget: Singapore spends another S$5.1b to save jobs, protect livelihoods amid impending circuit breaker rules
“TEMPORARY STALLING” OF ECONOMY
OCBC’s head of treasury research and strategy Selena Ling said the month-long “circuit breaker” is likely to contribute to a “temporary stalling” of the economy and have “a heavy toll” on businesses and workers.
“At this juncture, it is also uncertain if the one-month circuit breaker will succeed in breaking the local transmission channel and not be extended further,” she added.
Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect the shutdown of non-essential services from Apr 7 to May 4 to cost about S$10 billion, or 2 per cent of Singapore’s gross domestic product (GDP).
About 1.3 million jobs, or a third of total employment, could be affected given the labour intensive nature of these sectors, they added.
With 30 per cent of the economy shut for a month, Mr Chua and Ms Lee now expect the Singapore economy to fall into a recession deeper than what was seen during the Asian financial crisis in 1998 and the global financial crisis in 2009. Then, the economy contracted 2.2 per cent and 3.1 per cent, respectively.
“We downgrade our full year GDP growth forecast to -6 per cent, from -2.3 per cent,” they said, adding that growth for the second quarter will likely shrink “in a magnitude of about -16 per cent from a year ago”.
If true, this would be much worse than the 2.2 per cent year-on-year contraction seen in the first quarter.
READ: Singapore’s economy contracts by 2.2% in Q1 as COVID-19 outbreak hits construction, services sectors
READ: Singapore’s ‘bazooka’ stimulus to cushion COVID-19 pain, but recession still on the cards: Economists
Mr Chua and Ms Lee also painted a grim scenario for the job market, expecting job losses to rise to a range of 150,000 and 200,000 this year.
Foreigners will make up more than half of the retrenchments, they said, given that the Government’s financial support is targeted at saving jobs for locals.
Waiving the foreign worker levy for the month of April, as announced in the Solidarity Budget, may not be enough for many firms to retain their foreign workers.
“We forecast the unemployment rate spiking to above 5 per cent, higher than the 4.1 per cent during GFC (global financial crisis) and 4.5 per cent during SARS,” said the Maybank Kim Eng economists.
READ: Solidarity Budget: Jobs support raised to 75% for April, payout brought forward
UOB economist Barnabas Gan also sees “further upside risks” to his expectations for the unemployment rate to hit 3.5 per cent this year.
He noted that despite Government support packages, unemployment rates have risen during past crises on the back of more retrenchment exercises and firm closures.
The enhanced wage offsets under the Solidarity Budget – all companies to get 75 per cent wage support for local employees in April – could be inadequate, given that it is only for a month.
This “may be insufficient to dissuade retrenchments should the turnaround of economic conditions take much longer than expected”, Mr Gan said.
Economists from DBS, OCBC and UOB have kept their economic forecasts unchanged for now, but are cautioning further downside risks.
Mr Seah, who expects the Singapore economy to shrink 2.8 per cent in 2020, said: “While we are keeping our forecast unchanged, this latest set of circuit breaker measures could potentially tip the full-year growth figure a tad closer to our risk scenario of a 4 per cent contraction.”
Ms Ling said: “While we see downside risks from the one-month domestic circuit breaker and growing global recession headwinds, it is hard to call where the bottom is from here given the rapidly evolving COVID-19 pandemic and how much of an impact the Unity, Resilience and Solidarity Budgets may have.”
She sees the economy contracting by 3 per cent this year.
READ: Commentary: The heavy lifting needed to get Singapore through the COVID-19 slump
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Including the support packages that were earlier announced – S$6.4 billion in February and a record-breaking S$48 billion Resilience Budget on Mar 26 – Singapore has set aside close to S$60 billion in its bid to nurse the hit from the coronavirus pandemic.
The Government is proposing to draw a total of S$21 billion from past reserves to fund the Resilience and Solidarity Budgets. President Halimah Yaacob has given in-principle approval for the drawdown.
As the situation remains highly uncertain, Mr Heng has reiterated the Government’s stance that it “stands ready to provide further support, should it become necessary”.
Mr Seah from DBS said: “Having a strong national reserve has been fundamental to Singapore’s efforts to counter the negative shocks to its economy, and to ensure that its social fabric and economic structure remain intact.
“Years of heavy investment in its healthcare system has also proven to be instrumental in its ability to contain the spread of COVID-19.”
But the days ahead “will remain daunting”, noted the economist.
“There could be more pain before signs of stabilisation.”