News: MTI downgrades 2020 growth forecast as Q1 GDP fell by 2.2%

Mar 27, 2020

The revised growth forecast comes as MTI’s advanced estimates showed that the economy contracted 2.2% year-on-year during the first quarter of 2020.

The Ministry of Trade and Industry (MTI) has downgraded its 2020 GDP forecast to between -4% and -1% – a fall from the -0.5% to 1.5% range it previously posted in February this year.

“Since then, the Covid-19 outbreak has escalated and led to a significant deterioration in the economic situation both externally and domestically,” said MTI.

The last time the city-state a posted negative full-year GDP growth was nearly two decades ago; during the Internet dotcom bust in 2001, when a 1.1% contraction was registered, reported The Business Times.

Prior to that, the only other times when Singapore registered a negative GDP was during the Asian financial crisis in 1998 at -2.2%, and the -3.2% in 1964, when racial riots occurred.

Surprisingly, Singapore saw a GDP growth of 4.5% during the SARS outbreak in 2003. 

MTI’s most recent downgrade considered the weaker-than-expected performance of the city-state economy in Q1 2020. It also takes into account the sharp drop in the domestic and external economic environment since February.

The broader forecast range also accounted for the heightened uncertainties within the global economy, considering the novel coronavirus outbreak’s unprecedented nature as well as the public health measures introduced in various countries to contain the outbreak.

With MTI’s downgrade, economists also lowered their 2020 GDP forecasts, with a contraction unavoidable and recession imminent.

DBS slashed its full-year GDP forecast from -0.5% to -2.8%, while UOB downgraded its forecast from +0.5% to -2.5%.

OCBC revised its forecast from -1% to -3% and Mizuho Bank cut its forecast from -0.2% to -1.9%.

OCBC’s Head of Treasury Research and Strategy Selena Ling noted that the Q1 2020 GDP growth estimates of Singapore is like “the canary in the mineshaft” or a warning of more economic pain for other Asian economies.

The revised growth forecast comes as MTI’s advanced estimates showed that the economy contracted 2.2% year-on-year during the first quarter of 2020.

The economy shrank 10.6% on a quarter-on-quarter seasonally adjusted annualised basis, which is a sharp pullback from the previous quarter’s 0.6% growth.

Irvin Seah, Senior Economist at DBS, called the 2.2% projected contraction as “the worst year-on-year decline since the global financial crisis”, while confirming fears that a recession is “inevitable”.

The city-state’s service-producing industries shrank 3.1% year-on-year, reversing the 1.5% growth seen in the previous quarter. A significant drop in tourist arrivals along with a drop in domestic consumption due to the coronavirus situation led to accommodation, air transport, retail trade and food services sectors to shrink.

The services sector make up two-thirds of GDP employment. As such, if it falls, the economy is sure to follow, said Seah.

“Even an improvement in the manufacturing sector in the coming quarters will not be enough to offset the drag. This will be a services-led full-year recession,” he added.

The manufacturing sector contracted 0.5% year-on-year, a moderation from the previous quarter’s 2.3% contraction.

The construction sector shrank 4.3% year-on-year, a reversal from the 4.3% growth recorded in the previous quarter. The sector was pulled down by supply chain disruptions, a drop in private sector construction activities and delays in foreign workers’ return as a result of lockdowns as well as travel restrictions imposed by other countries due to the Covid-19 outbreak.

A contraction was also posted by the wholesale trade and other transportation and storage sectors, on the back of a decline in external demand and supply chain disruptions.

Meanwhile, the information and communications sector, together with finance and insurance, registered positive, albeit more subdued growth, said MTI.

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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg

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