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SINGAPORE: The current economic crisis caused by the COVID-19 pandemic is “deeper and probably longer” than past recessions, the Monetary Authority of Singapore (MAS) said on Wednesday (October 28).
Parts of the economy, especially those related to travel, may not return to pre-pandemic levels by the end of next year, as Singapore’s economy faces a “gradual but uneven” recovery, the central bank added. in your last semester. Annual macroeconomic review.
Improvements in the labor market will likely be “uneven and slow,” and the unemployment rate for residents, made up of citizens and permanent residents, will likely remain high in 2021, keeping wage growth low, MAS said.
READ: Singapore lowers 2020 GDP forecast range as economy registers record quarterly decline in second quarter
The economy will slow down in the fourth quarter
The pandemic and a “circuit breaker” in place to slow the spread of COVID-19 dragged Singapore’s economy into a record decline in the second quarter.
The resumption of business after the end of the circuit breaker may have slowed the economic decline in the third quarter, but this effect is not expected to last until the fourth quarter.
“With most industries already reopened, the supply-side momentum for growth will diminish in the coming quarters,” the central bank said in its report.
“At the same time, the shock will continue to spread through the demand side of the economy as businesses and households continue to be constrained by lost income and increased uncertainty, slowing investment and investment. discretionary spending “.
MAS expects economic momentum to slow in the last quarter of 2020, reiterating the Ministry of Commerce and Industry (MTI) previous projection that the economy will contract by 5-7 percent throughout the year.
READ: Singapore’s third-quarter GDP contracts at a slower pace of 7% after the economy gradually reopens after the circuit breaker
Growth will “remain modest” in 2021, and travel-related domestic services and some “touch-intensive” domestic services are unlikely to recover to pre-COVID-19 levels even by the end of 2021. Activities in these sectors “could still be below pre-pandemic levels until health risks diminish,” added MAS.
The travel sector is expected to experience prolonged headwinds as borders are reopened “very gradually.” MAS said Singapore may “lag behind the global air transport recovery given the absence of domestic flights.”
Although green lanes and travel bubbles are being phased in, the revival of cross-border travel may be “wavering” due to recurring waves of infection and strict travel measures.
Initiatives such as SingapoRediscovers vouchers could shore up domestic tourism and support some players within the sector, but MAS said that residents’ spending on accommodation and recreation services will not be able to offset the loss in tourism spending.
READ: COVID-19: Singapore and Hong Kong reach agreement in principle to establish bilateral air transport bubble
In the consumer-facing sector, the initial momentum, due to the relaxation of distancing measures in the third quarter, is expected to diminish in the last three months of the year, MAS said.
“On the demand side, it is unclear whether the early rebound in the retail and food and beverage sectors of pent-up consumer demand can be sustained, as tourist arrivals will remain depressed and increased economic uncertainty will continue to limit growth. discretionary household spending, “the central bank said.
Some of the sectors that have remained firm amid the pandemic could also moderate its progress. The pharmaceutical segment, for example, could see a decline in the level of activity in the coming quarters.
DEEPER AND PROTECTED CRISIS
The MAS report said the pandemic-induced recession has been unprecedented in its intensity.
During past recessions, it took the economy about four quarters to fall from high to low, but this time, the trough in gross domestic product (GDP) had occurred in the second quarter and “was much deeper” because of the ” nature of COVID-19 shock ”.
Singapore saw a cumulative 14 percent drop in GDP between pre-crisis levels in the fourth quarter of 2019 and the trough in the second quarter, more than double the 6.1 percent average contraction in previous recessions.
The central bank also compared the characteristics of the COVID-19 crisis with past recessions in metrics such as output, spending and income.
It found that the impact of COVID-19 had a greater impact on industries oriented to the domestic market, whose close ties to the rest of the economy amplified production losses.
MAS said the profile of recovery in past recessions was “quite symmetrical” to the decline, as it took the economy three-quarters to return from lows to pre-crisis levels.
But in the current cycle, the rebound in the economy in the third quarter after the depression largely reflected the gradual reopening after the end of the circuit breaker. This momentum is unlikely to be sustained in subsequent quarters, he noted.
“Without large-scale implementation of vaccination programs in Singapore and around the world, the threat of repeated outbreaks will continue to create economic uncertainty, hampering a more decisive recovery,” the central bank report said.
“So the recovery is likely to be longer than in previous recessions.”
RESIDENT UNEMPLOYMENT TO STAY ELEVATED
In the labor market, the decline in employment observed during the first half of 2020 was faster than previous recessions. MAS noted that this reflected the near cessation of activities in the labor-intensive sectors when the circuit breaker was installed.
The reopening of the national economy in the third quarter should see the absorption of underutilized work capacity, but beyond the immediate rebound, the recovery in the labor market would drag on, he said.
READ: Singapore’s overall unemployment rate in August rises beyond global financial crisis’ high
“The prolonged weakness in the travel-related sector is expected to spread to some of the adjacent industries, while the shift in consumption of labor-intensive services could also keep overall labor demand quiet,” he said. MORE.
An example of the latter would be how the growing prevalence of teleworking could slow down the demand for national transport services.
The “substantial uncertainty” in the macroeconomic outlook for 2021 will also mean weaker-than-expected activity in many sectors, which together with higher balance sheet stresses, may restrict labor demand.
Even the best-performing industries could see easier job growth, as companies may have moved up hiring in the face of temporary government incentives.
“In the absence of a smooth shift from public-supported employment to private-sector-led employment, a strong recovery in the labor market is not assured at this juncture,” MAS said, adding that general employment “will only expand modestly.” next year.
The central bank also said it expects local employment to “rebound more strongly” than foreign employment, in part due to government wage subsidies.
READ: IN FOCUS: Graduating in a COVID-19 Job Market: Short-Term Challenges and Long-Term Issues?
But the spike in resident employment in 2021 may not be strong enough to quickly return the economy to full employment, he added.
Reasons include mismatches in the labor market, with COVID-19 accelerating structural declines in labor demand for low- and mid-skilled service jobs due to the availability of new automated processes.
The new demand for labor could derive mainly from the modern service sector, where jobs may be more intensive in cognitive skills and information and communication technology.
“These emerging skills mismatches between excess labor supply and new labor demand can increase search frictions and impede labor market reallocation,” the central bank said.
Taken together, MAS said the resident unemployment rate “is forecast to only gradually decline next year.” In turn, it is expected to affect salaries for the rest of this year and possibly until 2021.
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