According to the latest data from the Department of Commerce and Industry, Singapore suffered its deepest economic slump in history in the second quarter (Q2) of 2020.
In the second quarter of 2020, the economy contracted 13.2 percent year-over-year, more than the estimated 12.6 percent decline and the worst in history.
MTI predicts the economy will contract between 5 and 7 percent this year, lowering its previous forecast of a 4 to 7 percent decline.
Minister of Commerce and Industry, Chan Chun Sing, was quoted as saying, "The forecast for 2020 essentially means that the growth achieved in the past two to three years will be negated."
Five months after the economic downturn triggered by the pandemic, the form of “recovery” is moving into focus – and it's not a pretty picture.
Singapore is likely to see an L-shaped recovery
In a doorstep interview on March 27, Prime Minister Lee Hsien Loong said that during Covid-19, the economy would not be a “V-shaped recovery” with a sharp but brief decline followed by a rapid recovery.
It wouldn't even be a “U-shaped rebound” with a gradual decline and a gradual rise, he added.
Given the difficulty of lifting a lockdown, economists predicted an L-shaped rebound was more likely.
An L-shaped recovery is characterized by a slow recovery with persistent unemployment and stagnant economic growth.
L-shaped rallies occur after an economic recession characterized by a sharp decline in the economy, but without a correspondingly steep recovery.
L-Shaped Restoration / Photo Credit: Forbes
In Singapore, preliminary data from the Department of Labor (MOM) dated Wednesday (July 29) showed that the overall unemployment rate rose from 2.4 percent in the previous quarter to 2.9 percent, while total employment (excluding foreign domestic workers) fell more than four times.
This is the highest unemployment rate in more than a decade as the cuts double.
The cuts continued in August when Singapore Press Holdings and Millennium Hotels and Resorts laid off their employees. The Extended Job Support Scheme can only delay the inevitable.
With unemployment at a 10-year high and cuts continuing, this suggests the likelihood of an L-shaped recovery.
The potential for a rebound in the K-shape economy
However, one economist has come up with an interesting concept of a "K-shaped" recovery, in which some industries have rallied strongly while others continue to decline.
According to the Washington Post, a K-shaped rebound will cause "those at the top of the pile to strengthen their positions while the others see their wealth continue to deteriorate."
Image credit: Agoda
"It's a recovery for financial investors and another recovery for everyone else," said Joe Brusuelas, chief economist at RSM.
An example of this recovery in the K-shaped economy, which is closer to home, is the recovery of the manufacturing and financial services sectors while the service sector is still stuck.
Sectors are recovering upwards
Earlier this month, on August 19, MOM stated that the dormitories for migrant workers are free of Covid-19.
Once Covid-19 is cleared, migrant workers will be able to return to work once the operators, employers and workers in the dormitory have made the necessary preparations to do so in a safe manner.
The construction sector will thus contribute to economic growth later this year and further stimulate the recovery in 2021.
The financial services sector reportedly grew five percent in the first six months of the year and performed better compared to the same period last year.
While the Monetary Authority of Singapore (MAS) expects the sector's growth to slow between June and December due to weaker credit demand and lower interest margins, the sector is unlikely to contract.
In addition to the construction and finance sectors, manufacturing was also supported by an increase in the production of pharmaceutical ingredients and biological products.
In fact, it was up 2.5 percent year over year in the second quarter, mainly due to an increase in production in the biomedical manufacturing cluster.
Growth was driven by the production of Covid-19 test kits, which were mass-produced by local biomedical companies to meet demand for tests.
Industries that continue to decline
While some industries grow year on year, service sectors like tourism and hospitality continue to suffer until a vaccine is widely available to undo the local economy and international travel.
Our aviation sector will not recover anytime soon as international travel has not yet resumed.
In recent news, our national airline, SIA, reported that it had used up half of the S $ 8.8 billion it raised from stock sales in just two months.
The funds were used to repay a bridging loan that was taken out to bail out the company from March to June, repay SIA's 10-year bonds for ticket refunds and the repayment of funds previously drawn under certain lines of credit.
Photo credit: Singapore Airlines
The International Air Transport Association said last month that the aviation industry is unlikely to fully recover before 2024.
In addition, the events industry is one of the hardest hit industries as business meetings, events, concerts, seminars, etc. cannot resume with the five people limit for social gatherings.
While the retail and F&B industries have had more customers and customers since the breaker was lifted, the Covid-19 outage has affected too many businesses, many of which are unable to maintain and eventually close.
The F&B sector in particular has seen many store closings and the retail sector has seen a number of bankruptcies such as sporting goods retailer Sportslink, minimalist lifestyle brand MUJI, and supplement retailer GNC.
Sectors see an uneven recovery
In the tourism and hospitality industry, the government is helping with a S $ 45 million tourism campaign encouraging locals to explore Singapore.
Agencies work with local communities such as foodies, photographers, nature groups, and heritage groups to help locals discover hidden gems.
Hotels have been reopening since July to welcome guests for stays. 204 hotels have received approval to resume operations for stays on August 17th.
As these select hotels reopen for stays, backpacker hostels and budget hotels are missing out on the staycation boom amid Covid-19.
Photo credit: Living in Singapore
The hostel operators, which are smaller businesses, don't have deep pockets to keep business going until tourism picks up again.
On the property side, the private residential property market is also expected to recover strongly from the economic downturn. However, the plight in the commercial property market remains a question.
The private residential real estate market had recovered from both the SARS outbreak in 2003 and the H1N1 pandemic in 2009, despite the lack of land lockdowns and strict measures to keep the country safe.
Home sales rose for the third consecutive year in July. Sales in July rose by 8.2 percent compared to June, which itself represents an increase compared to the previous month.
Christine Sun, director of research and advice at OrangeTee & Tie, said the fundamentals of the market such as political stability, security, transparency and the ease of doing business that have attracted overseas investors to the city-state will continue to stay strong after the pandemic.
On the other hand, many questions about the future of office demand remain open.
With the remote work popularized by Covid-19, some companies have even allowed their employees to work from home permanently, e.g. B. Twitter.
As a result, direct commercial real estate investments worldwide decreased 29 percent to $ 321 billion in the first six months of 2020 compared to the same period last year. This is based on data from the commercial real estate service provider JLL.
Effects of a K-shaped recovery
It is therefore clear that there may be a rebound in the K-shaped economy, with some sectors continuing to grow while others continuing to decline.
In a K-shaped recovery, jobs for the highest wage earners will recover completely, and some industries will recover as well.
Lower-income people fall deeper into poverty after losing their jobs or experiencing wage cuts. The rest of the economy continues to decline.
This leads to a growing income gap and increased income inequality in the world.
According to national bank DBS, the fallout from Covid-19 could widen the income gap.
Based on anonymized data from 1.2 million accounts, the bank reported that more than 300,000 workers saw salaries fell by over 10 percent between March and May.
Photo credit: Vulcan Post
About half of those affected were making less than $ 2,190 a month, suggesting lower-income groups are hardest hit.
Workers between 35 and 44 years of age were identified as the age group with the greatest deterioration in earnings.
Additionally, during an economic downturn, many companies decided not to pay out their 13th month bonuses and froze raise.
With all of this the poor get poorer and the income gap widens.
Additionally, due to reduced business activity, employees have been moved to shorter work weeks and layoffs, and they will likely continue until the safe distancing measures are completely lifted.
In addition, some workers have stated that their employers have told employees that if business resumes after the breaker closes, they will have to pay back their hours.
How the economy can recover
The government can help Singaporeans working in sick industries transition to other industries by building and acquiring new skills.
One measure that Singapore is already implementing is the TechSkills Accelerator (TeSA) program.
We also see SIA cabin crew who previously served as ambassadors for hospitals and made the permanent switch to healthcare when they found a new calling as patient carers.
In addition, the government has reacted quickly to the downturn, such as implementing the four budgets and pumping money into industries struggling to survive.
All of these measures will support the economy until the Covid-19 vaccine is available to allow the lifting of restrictions on international travel and social distancing measures.
Selected image source: Revenue Hub