As we usher in the new year following an eventful 2019, TODAY takes a look at what to expect in several key areas affecting Singaporeans' lives: Economy, property, environment, politics and transport. In the first of five instalments, we examine what is in store for Singapore’s jobs, wages and the economy at large. 

SINGAPORE — In the middle of 2019, economists began worrying that the global economy, and therefore trade-dependent Singapore, would slide into a recession in 2020.

However, the economic climate improved, and for the third quarter Singapore pulled in better-than-expected growth figures.

This has made economists more optimistic, with most of them saying they expect 2020 to be a year of “stabilisation”, especially as the United States and China look to be taking their first steps towards thawing their trade relations. 

But while growth indicators show that the worst may be over, don’t expect a dramatic turnaround story.

Wages and job growth will likely be tepid, and there are risks ahead that could yet derail the mending of the trade dispute between the US and China.

Here is a closer look at what to expect on the economic front this year.

BETTER, BUT NOT GREAT

“2020 is better but we are not saying it’s a good year,” said Mr Brian Tan, an economist at Barclays Bank. 

“It’s stabilising. But we’re not saying that there is going to be a rebound and everything is fantastic — no. It’s not a boom year that people are talking about. People have to manage their expectations.” 

The Ministry of Trade and Industry expects the Singapore economy to grow somewhere in the range of 0.5 to 2.5 per cent this year, a slightly better showing than the expected growth of between 0.5 per cent and 1 per cent for the whole of 2019. 

Economists say more growth-oriented policies from global central banks, improving manufacturing data globally as well as the easing of trade tensions between the United States and China will help to spur economies around the world. 

The Purchasing Managers’ Index, which surveys the sentiment of purchasing managers of manufacturing firms, in China, the US and the Eurozone are either picking up or at the very least bottoming out, said DBS Bank economist Irvin Seah. 

Given that Singapore is a trade-dependent economy, improvements in the global manufacturing sector will also lift the manufacturing sector here. Export, PMI and industrial production figures here are also showing signs of bottoming out. 

Aiding the recovering manufacturing sector would be the signing of the so-called Phase 1 trade deal between the US and China, set to take place sometime in the next few days, which would reduce US tariffs on Chinese goods and is expected to boost Chinese purchases of American farm, energy and manufactured goods. 

“That has added more clarity to an otherwise very cloudy outlook. It provides some glimmer of hope on the trade front, which continue to see improvement,” said Mr Seah. 

However, Mr Vishnu Varathan, the head of economics and strategy at Mizuho Bank, said that the economy would not fully rebound even if the deal is signed. 

“We are some way off a broad-based demand recovery that accompanies steadily rising confidence. If anything, things remain tentative, fragile and by virtue of that, very nervous as well.” 

COMPANIES ADJUSTING TO THE TRADE WAR

When the US-China trade war began in earnest in July last year and affected existing global supply chains, companies started relocating their production facilities from China to Southeast Asia in a bid to avoid US tariffs, while others started exploring the possibility of moving their supply chain from China to countries such as Vietnam and Indonesia.

The key lesson that companies have learned from the trade war, after having put too many eggs in one basket — China — is diversification, said Mr Seah. 

Concurring, OCBC economist Selena Ling said: “Now most multinational corporations take a ‘China plus one’ kind of approach. So they will produce in China for China and they will diversify to another emerging market country to produce for the rest of the world.”

Even as companies diversify, Ms Ling said there is also some evidence that Chinese companies are vertically integrating their manufacturing supply chain in China. 

“They don't want to be held hostage by US companies for selling them the chips so everything will be built in-house. So in a sense it becomes like a manufacturing fortress so you're not dependent on outside suppliers,” she said. 

This may have an impact on the supply chains of Asean member countries, she said, but added this will only be a potential problem beyond 2020. 

MEAGER JOBS AND WAGE GROWTH  

Improvements in the labour market usually lag behind economic growth by six to 12 months, so economists said not to expect hiring or wages to pick up very much in 2020, especially in the first half of the year . 

Singapore’s labour market is still weak from the effects of a downbeat economy in early 2019. 

But if the economy continues improving, business sentiment will go up and hiring managers will be more proactive in filling positions, said Mr Seah.  

Still, Mr Varathan said this recovery will be modest.

“(The earlier) negativity didn’t turn out into an outright recession that saw major contraction in businesses. That means that these businesses can pick up order numbers now without having to invest in machinery. We are not going to see a hiring binge, which is a precondition for wages to rise,” he said. 

Economists agree that wage growth for 2020 would be stable but subdued. 

Profit margins for businesses and disposable income for households will also be compressed in the year ahead, said Mr Varathan. 

STABILISATION COULD YET BE DERAILED

Economists and financial market players will be closely eyeing the Phase 1 trade deal between the US and China and watching to see whether the agreement will hold.

There is always a risk that relations between the two giants would regress, the deal might get torn up and the two countries could end up imposing more tariffs on each other in a tit-for-tat escalation — just as what has happened before, economists said.

Even if the deal holds, there is no telling whether US President Donald Trump would direct his trade protectionist actions towards economies other than China, for example the Eurozone, said Barclays’ Mr Tan. 

“Any restriction of trade will continue to eat away at that core competitive advantage that Singapore has,” he added. 

While the Phase 1 deal is a good step forward, it does not change the fact that the global trade environment is not as free as before, the economists noted. 

Under the deal, while a planned 15 per cent tariff hike on US$160 billion worth of Chinese goods will be suspended, a 25 per cent tariff on US$250 billion worth of Chinese goods still remains. 

And even if things seem to be simmering down on the trade front, the intensification of the tech war between the US and China on issues such as 5G technology and Huawei could dampen the nascent recovery of the global economy, said Mr Varathan. 

“Markets and businesses would be holding back a bit as they dynamically gauge how relations develop. They might want to wait till the end of next year for the outcome of the US presidential elections to get strong directions on US trade and foreign policy,” he added. 

AN EXPANSIONARY SINGAPORE BUDGET

Amidst the uncertainty swirling around the world, economists are sure of one thing — that the Singapore  Budget 2020 will be expansionary, with the Government likely to introduce fiscal measures to stimulate the economy. 

Aside from the fact that the economy could use a boost, Mr Tan said he expects an expansionary Budget as this will be the last one in which the Government could run a deficit if it wants to.

A General Election has to be called by April 2021, and the Government has to have a balanced budget by the end of its term. So far it has accumulated a surplus of about S$15 billion since the beginning of its term — money it can now spend before the election.

“This is their last chance to fund some of the things that they need to,” said Mr Tan. 

Economists expect the Budget to contain a mix of immediate and future spending, with a greater portion focused on future spending. 

For example, the focus of the Budget would likely still be skewed towards the long-term structural transformation of Singapore’s economy instead of providing a short-term boost to companies and households, said economists. 

The urgency to introduce targeted pain relief for companies affected by the downturn in 2019 has diminished as the global trade environment is looking up, said Mr Varathan. 

Economists said a package to offset the anticipated hike in Goods and Services Tax to 9 per cent, which is expected to take place some time between 2021 and 2015, may also be disbursed to provide help for households.