Wary analysts await Monday rescue plan, but warn of deeper recession risks

Their key concern is the labour market as the pandemic fallout spreads beyond the tourism-related sectors


THE new set of moves to curb the deadly rampage of Covid-19 might deepen the dent in the Singapore economy, economists have warned, as they fret over the downside to their already-sober recession forecasts.

With non-essential business and other activities set to cease, a month-long shutdown could cost the economy some S$10 billion, Maybank Kim Eng senior economist Chua Hak Bin told The Business Times.

Anticipating "further tightening" of social controls, Mohamed Faiz Nagutha, Asean economist at BofA Securities, had already tipped a full-year contraction of 5.7 per cent - worse than the official forecast of a 1 per cent-to-4 per cent plunge.

"We are not sure how much worse the latest announcement is compared to our expectations, but again stress that the risks to our forecasts are to the downside," he told BT.

But a key concern is the impact on the labour market, with analysts stressing that efforts to save jobs must be ramped up, as the contagion spreads from tourism-related sectors and infects the rest of the economy.

Economy watchers are awaiting a unprecedented third round of relief measures - which Deputy Prime Minister Heng Swee Keat will unveil in Parliament on Monday - before they pencil in any further downgrades.

Even though critical industries are exempt from workplace closures, the economic activity is not expected to offer a large cushion. Services such as banking, some construction projects, and semiconductor, pharmaceutical and petrochemical manufacturing are among those spared shutdowns.

"By keeping them open, they can still add to growth, although we may not see them offsetting the drag from slower demand in general," CIMB economist Song Seng Wun told BT.

Selena Ling, OCBC Bank's chief economist, said that ongoing essential services "cannot offset the temporary shock to the economy".

And United Overseas Bank economist Barnabas Gan said that, even if it is business-as-usual for factories, prevailing external export headwinds could still push manufacturing into a 3.8 per cent contraction for the year.

With the latest measures, Dr Chua now believes retrenchments could spike to as high as 80,000 this year - "far exceeding what was seen during the Asian or global financial crisis".

This is because many sectors that were not deemed essential, such as non-food retail and non-urgent construction, are far more labour-intensive than essential ones like banking or electronics manufacturing, he said. Layoffs here hit 28,300 in 1998 and last peaked at 23,430 in 2009.

So, while the unemployment rate was 2.3 per cent as at the end of last year, Ms Ling said it could hit "closer to 4 per cent in the coming months, with the food and beverage and retail sectors looking particularly vulnerable".

Economists are thus counting on Mr Heng to unleash even stronger wage subsidies next week, shortly after he bumped up government co-funding to at least 25 per cent of residents' salaries, from 8 per cent before.

Food-services employees would have half their pay cheques covered by the public dime, while aviation and tourism workers got 75 per cent wage relief, under the second support package unveiled in March.

Noting that rental and labour make up the main costs for businesses, DBS senior economist Irvin Seah called for an expanded Jobs Support Scheme, and said it "doesn't make sense to make them pay rents" either.

"It could be a case of broadening the upper threshold of 75 per cent to all industries, for instance," added Mr Song. "It's essentially about, as I say, drawing a line in the sand - providing a back-stop to local employment."

Dr Chua also suggested extra financial help for companies in sectors such as construction, outside of the worst-hit tourism-related industries.

To be sure, Mr Seah predicted that the economic impact of the restrictions will be marginal. He told BT: "Singapore is not a domestic-driven economy, and the risk on the external front has already been priced substantially into the forecast.

"So the dollar value of this lockdown ... will not incur a significant deviation from the official forecast."

Similarly, Mr Gan said that, should the control measures last for one month as planned, "the negative knock-on effects of these measures may be short-lived and are likely to have little material impact on our growth downgrade outlook".

Still, Ms Ling warned that it is hard to put a number on the size of the economic hit, "depending on whether the closures extend beyond a month".