March 4, 2024


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Singapore’s ‘bazooka’ stimulus to cushion COVID-19 pain, but recession still on the cards: Economists

SINGAPORE: With bigger wage offsets, property tax rebates of up to 100 per cent and more help for badly-hit sectors, Singapore’s newly announced fiscal “bazooka” will help to alleviate the strain that businesses and households are feeling from the COVID-19 outbreak, said economists.

But it will not be able to prevent a recession in Singapore, given the uncertainties over the virus’s spread around the globe and disruptions in the world economy, they added.

Deputy Prime Minister and Finance Minister Heng Swee Keat on Thursday (Mar 26) announced a S$48 billion stimulus package to save jobs and support workers; provide businesses, especially those that have been directly impacted, with help to cope with near-term challenges; as well as strengthen economic and social resilience.

READ: COVID-19 Resilience Budget: ‘Landmark’ S$48 billion package to tide Singapore through ‘unprecedented’ crisis

This is on top of the S$6.4 billion announced in Budget 2020 last month. Altogether, Singapore will earmark close to S$55 billion, or about 11 per cent of its gross domestic product (GDP), for its fight against the coronavirus pandemic.

The Resilience Budget is bigger than any of the support packages Singapore has had. It is more than double of what had been the biggest – a S$20.5 billion Resilience Package rolled out during the global financial crisis in 2009 – while other off-Budget packages for the downturns in 1998, 2001 and 2003 ranged from S$230 million to S$11.3 billion.

The Government plans to draw up to S$17 billion from the national reserves for this and has been given an in-principle approval by President Halimah Yacob. This will be the second time Singapore is dipping into its past reserves for special support packages, with the first being in 2009.


The S$48 billion figure exceeded economists’ expectations, who had pencilled in a range of S$7 billion to S$33 billion.

But such a “big bazooka” is necessary to cushion the slowdown, said CIMB economist Song Seng Wun, citing preliminary growth figures that show the economy shrinking a worse-than-expected 2.2 per cent year-on-year in the first quarter.

Policymakers have also downgraded the official growth forecast for 2020 to between -4 per cent and -1 per cent, a worse outlook from an earlier predicted range of -0.5 per cent to 1.5 per cent.

READ: COVID-19 Budget: What you need to know about the Resilience Budget measures

“With the economy projected to contract by up to 4 per cent, which would be the most severe since independence, the largest-ever fiscal package is necessary,” Mr Song told CNA. Singapore’s worst recession thus far was during the Asian Financial Crisis in 1998, when the economy contracted 2.2 per cent for the year.

OCBC’s head of treasury research and strategy Selena Ling said: “The shocking first-quarter GDP growth print suggests that the Singapore economy was (in) a cardiac arrest and the Resilience Package is the CPR that is being administered.”

But this latest resuscitation will not keep out a recession scenario, she added.

“A recession likely still beckons this year, with risks firmly tilted to the downside,” said Ms Ling. 

Maybank Kim-Eng economists Chua Hak Bin and Lee Ju Ye, who expect negative growth of 2.3 per cent this year, said the fiscal support will reduce job losses and the extent of unemployment.

But it will not be able to lift GDP growth or corporate revenues, they added.

Echoing that, HSBC economists said the recession scenario is “simply a reflection of the gargantuan challenge” confronting Singapore.

“While the spread of the virus domestically has been relatively well contained, the economy is nonetheless affected on multiple levels as a financial services, manufacturing, tourism, and logistics hub.

“Most worryingly, the impact of sharply slowing trade volumes and the collapse in oil prices have yet to seen,” they said.

The Singapore trade minister said officials were hopeful of reaching agreement on the China-backed

Clouds over the Singapore skyline. (File photo: AFP/Roslan RAHMAN)


The measures announced on Thursday included larger wage support and scrapping of property tax for those harder-hit sectors, deferment of corporate income tax payments for three months, S$20 billion to be set aside as loan capital and enhancements to various financing schemes for firms.

Worst-hit sectors will also be given more relief – a S$350 million enhanced aviation support package, S$90 million for the tourism industry when it recovers, a further S$95 million for taxi and private hire car drivers and S$55 million for arts and culture.

This slew of measures sent a clear message that the Government “will do whatever it takes to support the labour market”, HSBC economists wrote in a note. 

Given that a rapid labour market deterioration would exacerbate the ongoing downturn, authorities are “attempting to nip any plans for widespread job retrenchments in the bud”, they said, adding that substantial wage subsidies have been effective in preventing a more severe domestic downturn in 2009. 

“The finance minister is following a time tested recipe,” they added.

READ: COVID-19 Budget: Income tax payments for companies, self-employed people delayed for 3 months

There will also be income relief and more training support for the self-employed. For instance, eligible self-employed persons will get to receive S$1,000 a month in cash for nine months under a new scheme – a move that Ms Ling applauded as “a big deal”.

“It will probably not fully offset the drop in business demand, but at least it recognises that the gig economy is here to stay.

“It does not fully address the structural issues of job security, but that’s something to discuss further down the road after we ride out the COVID-19 storm,” she said.

READ: COVID-19 Budget: Self-employed people, firms, first-time jobseekers to receive more support 

READ: COVID-19 Budget: Unemployment benefits increase; higher cash payouts for adult Singaporeans

Together with the cash payouts for low-income workers, unemployment benefits and the additional cash transfers for households, it’s about “boosting morale” during a difficult time, said Mr Song.

“We cannot avoid a recession but what we can do is to cushion the impact on the broader economy by making sure that as many businesses stay afloat and as many people have jobs. These will hopefully support morale.

“Because if your morale is negatively affected, it will impact consumption and amplify the downturn,” he told CNA.

But more can be done and some observers pointed out that the retail sector has been excluded from the enhanced wage offsets, even though they are among the worst-hit.

Ms Ling said bigger wage offsets could be given to retailers, alongside more assistance for PMETs who lose their jobs in the form of cash payouts for the self-employed.

“But perhaps the Government is reserving some things for the third package if there needs to be one,” she said.

The ongoing tussle over rental rebates between major landlords and their smaller tenants may also be here to stay.

Mr Heng, while announcing zero property tax for qualifying commercial properties, reiterated his call for landlords to do their part and pass on these rebates to their tenants “fully”.

While some observers like CBRE head of research for Singapore and Southeast Asia Desmond Sim said this will further incentivise landlords to ease rental costs, some tenants remain skeptical.

READ: ‘If this goes on, I might quit’: Mall tenants want rental rebates soon to counter COVID-19 hit 

The SG Tenants United for Fairness, an informal group of mall tenants that have banded together over the past weeks, said landlords have “mostly taken their time” with the earlier rebates, with help rendered thus far being “very scattered and insufficient”.

“We don’t see any reason to think the zero sum game mentality of landlords has changed with this latest Budget,” a spokesperson said.

Overall, economists from Maybank Kim-Eng reckoned that the newly announced supplementary Budget “may be sufficient for six to nine months”.

“But if the world and Singapore remains in recession in the fourth quarter, another fiscal package may be necessary,” they said.

Mr Heng has said that with uncertainty remaining in the horizon, the Government will continue to monitor the situation closely and when necessary, it will be prepared to propose further draws on past reserves.

If that happens, Singapore certainly has the fiscal muscle to do more, said Mr Song.

The full size of Singapore’s reserves – which comprise the Monetary Authority of Singapore (MAS), GIC and state investor Temasek – is kept confidential for strategic reasons.

READ: Singapore’s reserves are for rainy days, COVID-19 already a ‘mighty storm’: DPM Heng


Economists are expecting the central bank to deliver the next boost to the economy at its policy meeting on Mar 30.

An easing move is almost certain, economists said, although there are varying expectations of what that might be.

Instead of setting interest rates, MAS operates a managed float regime for the Singapore dollar, allowing the exchange rate to fluctuate within an unspecified policy band.

It changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the Singapore currency.

READ: The S$NEER and its slope, width and centre: Questions about Singapore’s monetary policy

At the very least, the central bank is likely to flatten the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, said economists from at least four financial houses.

HL Bank strategist Jeff Ng said: “They are letting fiscal policy do the heavy lifting and monetary policy to mainly support, provide liquidity and prevent any contagion effect, which is why I’m expecting them to move gradually with flattening the slope for now.”

There are others who expect the MAS to pull two punches at one go – to opt for a neutral stance and adjust the mid-point lower. Such moves will significantly weaken the Singapore dollar.

Barclays economist Brian Tan said the downgraded growth forecast likely implies “a dramatic swing in the output gap deep into negative territory”, which MAS will attempt to offset with an additional downward re-centering.

For Mr Song, the central bank could make an even more drastic move next week.

“Weaker inflation and sharply weaker growth which may be protracted gives the MAS room to shift the policy band to neutral and re-centre the policy band to a lower level.

“Because we now have a high level of uncertainty about the future path of the economy and inflation which is expected to persist, it may even allow the MAS to widen its policy band,” said the veteran economist.

“This is, after all, an unprecedented downturn with an uncertain growth path ahead.”

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