The Monetary Authority of Singapore (MAS) confirmed in a macroeconomic report released today that the country "will enter a recession this year."
This major economic downturn was caused by the effects of the coronavirus outbreak.
The Singapore economy shrank by 2.2 percent in the first three months compared to the previous year. It is the first negative quarter since the global financial crisis in 2009.
As many companies were closed during the breaker period and Singapore's trading partners were also badly affected, MAS warned that we should expect a stronger decline in the second quarter.
Economic growth for the full year could even fall below the forecast range of -4 to -1 percent depending on the development of the situation.
If so, it would be the worst contraction the country has ever seen.
Singapore experienced the worst recession in 1998 during the Asian financial crisis, which slowed economic growth by 2.2 percent.
In 2001, the Dotcom bust caused a decline of 1.1 percent.
In the global financial crisis, Singapore's economy continued to grow 0.1 percent this year.
The length and severity of the recession are still uncertain
"At this point, there is still considerable uncertainty about the severity of the downturn and the potential recovery," said MAS.
This is because Singapore's prospects depend on external factors such as the virus transmission and how long it takes other countries to recover.
We do not know if the virus will rejuvenate in the second half of 2020 and there may be a risk of a subsequent wave of infection since no vaccine was found.
Given these uncertainties, it will also be difficult to predict the severity and length of the impending recession in Singapore and the strength of the recovery.
MAS added that containment measures can only be gradually removed due to the nature of the pandemic.
"Indeed, occasional rounds of containment measures may be required, which hampers a crucial recovery in economic activity," the central bank said.
Three risks for the Singapore economy
MAS highlighted some significant downside risks that could affect Singapore.
First, if more stringent containment measures were to be taken worldwide, this would further restrict economic activity and lead to worse than expected growth.
Second, the resumption of global economic activity could be delayed if the pandemic continues longer than expected and persistently weak demand affects the timing of the recovery.
Third, uncertainty about Covid-19, which is "more contagious but less detectable" than SARS, could delay consumer and business spending. This could mean a more gradual and less critical recovery in the global economy.
If these three risks occur in any combination, economic growth in Singapore could fall below the currently forecast range, MAS said.
Decline in labor demand In most sectors
The labor market in Singapore will have a major impact due to the recession.
Across the economy, companies could cut labor costs through cut wages and downsizing, MAS said.
In the most affected sectors, such as travel, hospitality, retail, transportation, F&B and leisure, layoffs are most likely.
Some of these sectors saw slow growth before the eruption.
Companies that faced difficulties before the pandemic are the ones most likely to fire workers.
However, the central bank said that overall wages are more affected than jobs.
The government has stepped up its job creation efforts to help jobseekers who find it harder than ever in these difficult conditions.
It launched the SGUnited Jobs program to create 10,000 new jobs by 2021.
From June 1, 2020, more than 4,000 job offers and internships for new and young graduates will be offered in Singapore.
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