SINGAPORE – Singapore’s shift in policy emphasis, towards learning to live with Covid-19, has lit up the path to a stronger and broader economic recovery.
Prime Minister Lee Hsien Loong said this week that if Covid-19 is here to stay, Singapore would have to learn to deal with it, just like it does with dengue or influenza.
This is quite a departure from the previous posture, where Singapore seemed focused on stamping out the virus.
PM Lee also doubled down on efforts to get as many people vaccinated as possible and at an accelerated pace.
Mr Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics, said: “If the country can indeed emerge from the heightened alert as scheduled on June 13, our forecast will likely be adjusted upward.”
He added: “Our forecast has not changed yet for Singapore, and we continue to classify the Singapore economy’s business cycle as at risk.”
Moody’s Analytics expects Singapore’s economy to grow 5.5 per cent, within the range forecast by the Ministry of Trade and Industry (MTI), of 4 per cent to 6 per cent.
MTI and the Monetary Authority of Singapore also believe the economy can grow more than 6 per cent if global demand for the country’s goods and services stays strong enough throughout the year.
However, the heightened alert measures clouded the outlook and prompted the Government to give additional fiscal support to affected sectors.
The support measures and PM Lee’s resolve to meet the Covid-19 challenge head on are likely to give local businesses the confidence they need to resume planning for future expansion, which is a precursor to hiring plans.
The recent curbs were probably unavoidable, given the sudden flare-up in community cases, and were designed to spare the manufacturing sector – virtually the only engine now lifting the economy out of its worst recession ever. But, as elucidated by the latest data, the sector did take a hit.
Singapore’s Purchasing Managers’ Index (PMI) for May posted a surprise retreat of 0.2 points from April to record a weaker rate of expansion at 50.7, according to a report released on Wednesday.
The Singapore Institute of Purchasing and Materials Management (SIPMM) said the PMI for May reflects the impact of the heightened alert measures.
The PMI reading for the electronics sector – which represents the bulk of overall manufacturing – slowed as well.
Ms Sophia Poh, vice-president of industry engagement and development at SIPMM, said anecdotal evidence suggests that manufacturers are facing delivery postponements.
Business leaders talking to The Straits Times before PM Lee’s speech and the PMI report had explained how new Covid-19 variants and the curbs in response by Singapore and several other nations across Asia had affected business sentiment.
Delays in decision-making or postponement of orders and deliveries eventually result in lost business opportunities, especially for small and medium-sized enterprises (SMEs).
Mr Kurt Wee, president of the Association of Small and Medium Enterprises, said travel restrictions alone have caused quite a bit of damage to local SMEs.
He said SMEs have to scour the globe in search of business deals, unlike large companies that rely on their strong branding and supply chain networks. “SMEs cannot get new businesses by making virtual calls. They need that face-to-face interaction to keep their businesses going.”
PM Lee addressed the issue of travel management as well, saying borders would not be completely closed and that some entry of the virus through border controls would have to be tolerated.
Such a bolder approach in managing the economy through the Covid-19 crisis is seen as a crucial step to bringing the economy back to a more normal state.
The reason why some economic experts still consider Singapore’s business cycle at risk is that the recovery is uneven both at home and abroad.
In Singapore, some businesses will continue to reel from the curbs on travel, tourism and hospitality, industries that together account for 15 per cent of the country’s gross domestic product (GDP).
Also, the official forecast’s higher end of 6 per cent is mainly from the low base effect, given that GDP shrank by a record 5.4 per cent last year.
Even at 6 per cent or slightly higher, this would be one of the weakest recoveries from a recession for Singapore.
The growth rebounds after previous downturns have been around 10 per cent, with the economy surging by 14.5 per cent in 2010 after the global financial crisis of 2008-2009.
On the global front, the recovery is completely lopsided in favour of large economies with better access to vaccines.
The Organisation for Economic Cooperation and Development recently upgraded its 2021 global GDP estimate to 5.8 per cent, from 4.2 per cent, forecasting the fastest growth since 1973.
The world’s top economies, those in the Group of 20, are expected to grow at an average of 6.3 per cent, higher than the global average.
That means most emerging economies – many of them Singapore’s trading partners – will continue to lag behind.
The World Economic Forum’s latest Chief Economists Outlook report classified the improving global recovery momentum coming in a “profoundly uncertain environment with widely diverging trajectories”.
Flagging the risk of a recovery completely dependent on the trade-driven manufacturing sector, McKinsey in a recent briefing note pointed out more immediate issues that may threaten growth, such as the global shortage of semiconductors – the building blocks of all electronic products.
Most of Singapore’s manufacturing growth comes from the electronics cluster, which follows the lead of tech giants such as Apple and Samsung. Both have indicated the possibility of managing the shortage with production cut-backs.
Lower production by global players can result in a flattening of export growth for Singapore’s electronics segment.
Hence broadening the base of recovery by allowing more sectors and smaller businesses to participate in it is seen as necessary, going forward.