• Growth forecast for 2020 also downgraded 
• Second quarter performance worse than initial estimates
• The economy contracted 6.7 per cent in the first half of the year
• Construction, transportation and storage, accommodation and food services sectors hardest hit

SINGAPORE — Singapore's economy shrunk 13.2 per cent for the second quarter of this year compared to the same period last year, as the country enters into its worst recession since independence. 

From an initial projection that the gross domestic product (GDP) will shrink between 4 and 7 per cent, the Ministry of Trade and Industry (MTI) downgraded this forecast on Tuesday (Aug 11) to an economic contraction of between 5 and 7 per cent this year. 

This means that the growth generated over the past two to three years will be negated, said Trade and Industry Minister Chan Chun Sing at a press briefing after the figures were released. 

The second quarter numbers are worse than the earlier estimates of a 12.6 per cent contraction, which shows that Singapore is in a deeper recession than initially thought. 

Compared to the first quarter on a seasonally-adjusted basis, the economy contracted by 13.1 per cent, also faring worse than advanced estimates of 12.4 per cent.

When the quarterly growth rates are annualised, Singapore’s economy shrank 42.9 per cent in the second quarter, a higher contraction than the initial estimate of 41.2 per cent. 

“The fall in GDP was due to the circuit breaker measures implemented from April 7 to June 1 to slow the spread of Covid-19 in Singapore, as well as weak external demand amidst a global economic downturn caused by the Covid-19 pandemic,” said MTI in a media release. 

Taking into account the 0.3 per cent decline in the first quarter, MTI’s permanent secretary Gabriel Lim said that Singapore’s economy shrank 6.7 per cent in the first half of 2020. 

The last time Singapore was in a recession was in 2001 when the dot com bubble burst and the economy declined by 1 per cent. 

Before Covid-19 wreaked havoc on Singapore’s economy, the largest full-year contraction was registered in 1998, when the economy shrank by 2.2 per cent as it reeled from the Asian financial crisis. 

The steepest quarter-on-quarter drop on an annualised seasonally-adjusted basis was 11 per cent during the third quarter of 2010, following the global financial crisis in 2008 and 2009. 

HOW THE DIFFERENT SECTORS PERFORMED

Among the sectors hit the hardest in the second quarter this year were construction, transportation and storage, as well as accommodation and food services. 

The construction sector contracted 59.2 per cent in the second quarter compared to the same period last year, as almost all construction activities stopped during the circuit breaker. 

“Construction firms were also affected by manpower disruptions arising from additional measures to curb the spread of the virus, including movement restrictions at foreign worker dormitories,” said MTI. 

As for the transportation and storage sector, the decimation of global air travel, a drop in sea cargo volume at the ports, and a sharp drop in the use of land public transport due to remote working caused the sector to shrink by 39.2 per cent over the same period. 

The accommodation and food services sector contracted by 41.1 per cent in the second quarter compared to a year ago, due to a plunge in international arrivals and restrictions in dining-in activities during the circuit breaker. 

Other services sectors fell 17.8 per cent over the same period, largely dragged down by the arts, entertainment and recreation segments as these companies were unable to operate due to restrictions imposed during the circuit breaker. 

In contrast, manufacturing, information and communications, as well as the finance and insurance sector were relatively unscathed. 

The manufacturing sector shark 0.7 per cent in the second quarter compared to the same period a year ago. 

The sector was weighed down by declines in transport engineering, general manufacturing and chemical clusters, but helped by better-than-expected growth in the biomedical manufacturing, electronics and precision engineering clusters.

The information and communications sector only had a mild contraction of 0.5 per cent over the same period, due to weaker demand for roaming and prepaid services as international travel grinds to a halt. 

The finance and insurance sector was the only one that saw growth in the second quarter, expanding by 3.4 per cent year-on-year. 

OUTLOOK FOR SINGAPORE 

MTI said that Singapore’s external demand outlook has weakened slightly since May when it downgraded the growth forecast for 2020 to between -7 and -4 per cent. 

“Many of Singapore’s key final demand markets saw worse-than-projected economic disruptions in the second quarter, and are also expected to experience a more gradual pace of recovery in the second half of 2020 due to the threat of localised outbreaks and the continued need for restriction measures to contain such outbreaks as they occur,” said MTI. 

In addition to a weakening outlook, Mr Lim said that significant uncertainties remain in the global economy. 

These include a resurgence of Covid-19 infections leading to lockdowns being re-imposed, stresses in financial markets, as well as risks from geopolitical tensions. 

These factors will have an effect on Singapore’s external-oriented sectors, such as transportation and storage, tourism as well as wholesale trade. 

These areas will continue to remain sluggish, he said.

Domestically, Mr Lim said sectors reliant on foreign workers living in dormitories are resuming work at a pace slower than expected due to the longer time taken to clear these workers for work. 

The downturn for the construction and marine and offshore engineering sectors will be deeper than previously expected and this could have negative spillover effects on firms supporting these industries. 

When asked about their forecast for the third quarter, Mr Lim said the ministry expects a gradual recovery in the second half of the year, but for the year-on-year figures to still be negative. 

Mr Kenny Tan, director of the manpower planning and policy division at the Ministry of Manpower, said that hiring demand will dampen among companies but the pressure to retrench will go up. 

With about 6,700 people retrenched in the second quarter according to MOM’s advanced estimates, the numbers have now surpassed the high during the severe acute respiratory syndrome (Sars) crisis in 2003, when there were 5,510 retrenchments.

But it remains below the peak reached during the global financial crisis of 2008, when there were 12,760 layoffs.