Emerging Asia Economics

Singapore GDP (Q1, Advanced)

Emerging Asia Data Response
Written by Alex Holmes

The sharp contraction in Singapore’s economy in Q1 was deeper than expected, and with global growth collapsing, the worst is yet to come. Given today’s outturn, we are lowering our 2020 GDP growth forecast from -3.0% to -3.5%.

The worst is yet to come

  • The sharp contraction in Singapore’s economy in Q1 was deeper than expected, and with global growth collapsing, the worst is yet to come. Given today’s outturn, we are lowering our 2020 GDP growth forecast from -3.0% to -3.5%.
  • According to today’s advanced estimate, Singapore GDP shrank by 10.6% in Q1 on a q/q seasonally-adjusted annualised basis. (See Chart 1.) In year-on-year terms output fell by 2.2%. This was more than expected. (CE and Reuters median both -1.5%.) A key thing to note is that the advanced estimate is based on the first two months of the quarter and is frequently subject to large revisions. The increase in international travel restrictions and the likely slump in global activity in March means that the revised estimate is likely to be even worse.
  • Growth in the manufacturing sector improved slightly. (See Chart 2.) But the construction sector contracted sharply due to a drop in private construction, which has been hit hard by supply chain disruptions and foreign worker shortages from the coronavirus outbreak. The outbreak also saw a slump in the services sector as it weighed heavily on tourist arrivals and domestic demand.
  • Looking ahead, things are likely to get much worse. On the domestic front, the government announced the closure of bars and entertainment venues, plus restrictions on other large gatherings of people from 27th of March. This will further weigh on consumption. There are now strict travel restrictions on all countries, meaning activity in the tourism sector, which accounts for over 4% of GDP, is likely to be very depressed over the next quarter.
  • The biggest drag is likely to come from a sharp slowdown in the global economy. The outlook for exports has deteriorated significantly in recent weeks as countries across the world have announced strict curbs to economic activity. We are now forecasting a deep global recession, with world GDP set to fall by 1% this year, which is a sharper fall than during the global financial crisis.
  • As one of the world’s most export dependant economies, Singapore is set to be hit hard. While things are obviously very uncertain, we have pencilled in a 25% q/q-annualised fall in GDP next quarter. Overall, we expect the economy to shrink by 3.5% this year, which is a deeper contraction than the -3.0% we were forecasting before today’s release.
  • In the data release today, the Ministry of Trade and Industry struck a similar tone. Taking into account “the sharp deterioration in the external and domestic economic environment since February” it lowered its 2020 GDP forecast to a range of -4.0 to -1.0%.
  • Given the worsening outlook, policy support is set to be stepped up in the coming weeks. The MAS is likely to ease policy by flattening the slope of its exchange rate target band, any time between now and its scheduled meeting in mid-April. Meanwhile, we think the government is likely to expand on the support it announced in the 2020 budget last month. A strong fiscal position means it has plenty of room to do so.

Chart 1: Singapore GDP

Chart 2: Singapore GDP (% q/q, annualised)

Source: Refinitiv

Source: Refinitiv

Alex Holmes, Asia Economist, +65 6595 1515, alex.holmes@capitaleconomics.com


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