Economy tipped to shrink 6% this year

Economists in latest MAS survey lower forecast for 2020, but anticipate better recovery in 2021

Private sector economists made a further cut to their 2020 forecast for Singapore's economy but turned more bullish about the strength of a recovery next year.

The economy may shrink by 6 per cent this year, according to a quarterly survey of 26 economists and analysts by the Monetary Au thority of Singapore (MAS), slightly worse than the 5.8 per cent contraction predicted in the previous survey released in June.

But the professional forecasters expect growth in gross domestic product (GDP) to recover to 5.5 per cent next year, up from the 4.8 per cent they had tipped earlier, MAS said in the survey report yesterday.

The Ministry of Trade and Industry (MTI) last month lowered its outlook for the fifth time this year, with the economy now forecast to shrink by 5 per cent to 7 per cent.

MTI's cut would make this year's recession Singapore's worst since independence. So far, there is no official forecast for 2021.

Ms Selena Ling, OCBC Bank's head of treasury research and strategy, said there is still a significant degree of uncertainty attached to the 2021 outcome, as cautioned by many policymakers worldwide.

"Even assuming 5.5 per cent growth in 2021, the value of Singapore GDP will not return to the 2019 pre-Covid-19 levels," she said.

OCBC's 2021 growth forecast is at a more conservative 4 per cent.

The downgrade of the 2020 growth in the MAS survey was predicated on a weaker outlook for construction, accommodation and food services, and private consumption.

United Overseas Bank economist Barnabas Gan said the softness in the construction sector is likely to continue into the second half of the year. "We remain concerned about the spread of Covid-19 in worker dormitories."

However, median forecasts improved for manufacturing, finance and insurance, wholesale and retail trade, and non-oil domestic exports over the June survey.

Ms Ling said: "The rationale for these forecast revisions can be attributed to the strong risk-on sentiments since the reopening of global and domestic economies since June."

Major central banks' commitments to keep monetary policy accommodative for longer, and yield-seeking investor behaviour due to the very low interest rate environment have aided activities in the finance and insurance segment, she said. In addition, pent-up demand after the local economy moved into phase two of its reopening in June has buoyed retail sales, she noted.

For the third quarter of this year, the analysts polled for the survey expect the economy to contract 7.6 per cent year on year, easing from the second quarter's record 13.2 per cent plunge. MTI is likely to issue advance estimates for the July to September period later this month.

A further deterioration in the coronavirus situation due to further waves of outbreaks or delays in vaccine development topped the list of downside risks to Singapore's growth outlook in the latest survey.

Ninety per cent of the respondents cited the risk of a secondary outbreak and 75 per cent ranked it as the top downside risk.

An escalation in United States-China tensions was identified by 60 per cent as a downside risk, up from 55.6 per cent in the previous survey.

Respondents were also concerned about risks stemming from a slower-than-expected global economic recovery, with 25 per cent identifying it as a risk, compared with 16.7 per cent in the earlier survey.

Meanwhile, the containment of the outbreak again emerged as the most frequently cited upside risk.

Seventy-five per cent of the respondents listed it, and 60 per cent ranked it as the top upside risk.

Respondents also identified stronger-than-expected manufacturing sector performance as a key upside risk. In addition, 30 per cent of them flagged easing US-China tensions as an upside risk, up from 16.7 per cent in the previous survey.

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