SINGAPORE – Singapore’s economy will recover in fits and starts amid a protracted pullback in labour demand, the Monetary Authority of Singapore (MAS) said on Wednesday (Oct 28).
MAS reiterated the Government’s forecast for the economy to shrink by a record 5 per cent to 7 per cent this year because of the coronavirus pandemic. It said the economy will post above-trend growth for 2021 due to the effects of the low base in 2020.
“The path ahead remains clouded with uncertainty,” MAS warned in its twice-yearly macroeconomic review released on Wednesday.
“Some pockets of the economy, particularly the travel-related and some contact-intensive domestic services, are not expected to recover to pre-pandemic levels even by the end of next year.”
MAS said the pace of recovery is expected to moderate in the quarters ahead, as firms and households continue to be restrained by income loss and increased uncertainty, in turn holding back on investment and discretionary spending.
Downside risks to the growth outlook could also materialise if a resurgence in worldwide Covid-19 infections prompts more shutdowns and results in weaker-than-expected external demand, or if domestic labour market conditions deteriorate further and hamper a decisive pickup in consumer demand.
The Singapore economy registered its worst performance ever in the second quarter because of the circuit breaker measures, before experiencing a growth rebound in the July to September period when most of the movement curbs were relaxed.
The nation’s gross domestic product (GDP) contracted in the second quarter by 13.2 per cent on a quarter on quarter seasonally adjusted basis. The rebound in the third quarter saw the economy expanding by 7.9 per cent on the same measure.
While some of the sectors, mainly export-driven manufacturing, have since seen a pickup as the economy reopened, overall output is still some 7 per cent below pre-Covid-19 levels, MAS noted.
The rebound in the third quarter was also aided by the Government’s budgetary support measures. The impetus from fiscal support is like to abate in the fourth quarter even as some measures such as the Jobs Support Scheme may persist.
The central bank said that compared with previous recessions, the current downturn has affected the domestic-oriented industries more severely.
These sectors have stronger interlinkage with firms and households within the domestic economy, thus amplifying the negative shock.
The particular nature of the Covid-19 shock is also evident in the expenditure and income components of the nation’s GDP, with private consumption, public investment and government income contracting more sharply than in previous crises.
MAS said that unlike the global financial crisis of 2008 when the resident unemployment rate returned to pre-crisis levels after six quarters, the recovery in employment is likely to be uneven and slow.
Indeed, the resident unemployment rate continued to rise to an average of 4.3 per cent in July to August even after phase two of the economy’s reopening in June, when the rate was at 3.8 per cent.
MAS said the unemployment rate among Singaporeans and permanent residents is likely to stay elevated in 2021, keeping wage growth low.
“In all likelihood, the recovery will be more protracted than those in the past,” it added.