SINGAPORE (Reuters) – Singapore’s trade-dependent economy fell into recession in the second quarter with a record contraction, signaling a global first semester globally and an equally challenging outlook as the coronavirus crisis comes at a high cost in business and demand.
Gross Domestic Product (GDP) fell a record 41.2% in the three months ended March, on a quarterly annualized basis, preliminary data from the Ministry of Commerce and Industry showed Tuesday.
That was worse than economists’ expectations of a 37.4% decline in the quarter when Singapore was under a blockade to stem the spread of the virus.
The first in Asia to report second-quarter GDP data, the bleak numbers for the wealthy city-state, a benchmark for the global economy, underscore the global impact of the COVID-19 pandemic and point to an arduous road ahead. Many major economies are already facing their worst decline in decades.
“If you want to read something about this, it’s what’s going to happen to economies that have taken a similar type of blockade,” said Rob Carnell, chief Asia-Pacific economist at ING Bank.
In June, the International Monetary Fund warned of a sharp contraction in global economic activity as the health crisis closed businesses, depressed consumption and paralyzed trade. World production in 2020 is forecast to decline by 4.9%, compared to a 3.0% contraction forecast in April.
The pandemic once in a century so far has infected more than 13 million people worldwide and killed more than 571,000. Singapore has reported 46,283 coronavirus cases with 26 deaths as of Monday.
“There is also an element of global weakness there, obviously the trade side is very important to Singapore and that has been absolutely affected,” Carnell said.
The sectoral impact was broad based with the services and construction sector most affected.
Construction collapsed 95.6% quarterly, halting almost as the city-state quarantined tens of thousands of migrant workers in dormitories devastated by the virus.
“We expected these numbers to look pretty bleak, although this is worse than we expected,” said Steve Cochrane, an economist at Moody’s Analytics.
On an annual basis, GDP fell 12.6% compared to economists’ forecast for a contraction of 10.5%.
The manufacturing sector grew 2.5% over the previous year, mainly due to an increase in production in the biomedical sector, although it was still lower than the 8.2% increase in the first quarter.
The fall in GDP marked the second consecutive quarter of contractions for the global financial center, having decreased a revised 0.3% year-on-year in the first quarter and 3.3% quarter-on-quarter, meeting the definition of a technical recession.
Worst slip
The Singapore dollar was down 0.2% on the day against the US dollar.
The government expects full-year GDP to contract in the range of -7% to -4%, the biggest recession in its history. Citi analysts see a 8.5% contraction and expect another downgrade of official forecasts next month when final GDP data is released.
The central bank eased its monetary policy in March and introduced measures to boost bank loans, while the government injected stimuli worth nearly S $ 100 billion ($ 72 billion) to mitigate the impact of the pandemic.
The Popular Action Party, which extended its uninterrupted rule in last week’s elections, has said protecting Singapore’s jobs is its highest priority.
Analysts expect the economy to begin to improve as more businesses and services reopen, but warned of a bumpy road ahead.
“We expect growth to rebound in H2 backed by a massive fiscal response,” said Sung Eun Jung of Oxford Economics.
“But if global demand takes another hit from a new imposition of locks … we are likely to see a more ‘W-shaped’ recovery.”
Reports by Aradhana Aravindan and John Geddie in Singapore; Editing by Shri Navaratnam
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