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SINGAPORE – The impact of Covid-19 has hit Singapore’s domestic market-oriented industries more severely than in past recessions, so the economic recovery will likely take longer, the Monetary Authority of Singapore (MAS) said on Wednesday. (October 28).
MAS said the pace of the recovery is expected to moderate in the coming quarters as businesses and households continue to be constrained by lost income and increased uncertainty, which in turn curbs investment and discretionary spending.
Downside risks to growth prospects could also materialize if a resurgence of Covid-19 infections worldwide triggers more closures and results in weaker-than-expected external demand, or if labor market conditions The national economy deteriorates further and hinders a decisive rebound in consumer demand.
MAS reiterated the government’s forecast that the economy will contract by a record 5% to 7% this year due to the coronavirus pandemic. He said the economy will post above trend growth by 2021 due to the effects of the low base in 2020.
“The way forward remains clouded by uncertainty,” MAS warned in its biannual macroeconomic review published on Wednesday.
“Some pockets of the economy, particularly those related to travel and some contact-intensive domestic services, are not expected to recover to pre-pandemic levels even by the end of next year.”
Singapore’s economy posted its worst performance in the second quarter due to circuit breaker measures, before experiencing a rebound in growth in the July-September period, when most movement restrictions were relaxed.
The nation’s gross domestic product (GDP) contracted in the second quarter by a seasonally adjusted 13.2 percent quarter-on-quarter. The rebound in the third quarter caused the economy to expand 7.9 percent to the same extent.
While some of the sectors, primarily export-led manufacturing, have since seen a rebound as the economy reopened, overall production is still 7% below pre-Covid-19 levels, MAS noted. .
The recovery in the third quarter was also helped by the government’s budget support measures. The momentum of fiscal support is likely to diminish in the fourth quarter, even if some measures such as the Employment Support Plan may persist.
DBS Bank Senior Economist Irvin Seah said that while Singapore’s economy is recovering, amid the reopening in stages in the country and the rebound in some regional markets, the recovery will remain uneven and growth performance between The sectors will differ considerably.
“The service sector has endured the brunt of the crisis and is expected to continue to be a drag on growth and jobs,” Seah said.
MAS said that unlike the 2008 global financial crisis, when the unemployment rate for residents returned to pre-crisis levels after six quarters, the recovery in employment is likely to be uneven and slow.
In fact, the unemployment rate for residents continued to rise at an average of 4.3 percent between July and August, even after the second phase of the economy reopening in June, when the rate was 3.8 percent. hundred.
MAS said the unemployment rate among Singaporeans and permanent residents is likely to remain high in 2021, which will keep wage growth low.
The central bank also said that the Covid-19 recession has been unprecedented in its intensity, having resulted in a cumulative 14 percent drop in GDP from pre-crisis levels in the fourth quarter of 2019 to a low at the second quarter of 2020. This compares with an average contraction of 6.1 percent in previous recessions.
Explaining why the recovery would take longer, MAS said that the impact of Covid-19 has disproportionately affected Singapore’s domestic and travel-related services, such as food and beverage, retail, construction and aviation and hospitality, unlike previous recessions that were generally driven by the outward-facing manufacturing sector. These sectors have stronger ties to businesses and households within the national economy, amplifying the negative impact.
“Although the inward-oriented sectors represent a smaller proportion of GDP compared to the outward-oriented sectors, they generate significant indirect effects or negative secondary effects on the economy through production and consumption channels,” MAS said.
The loss of final demand in the most affected sectors generates a domino effect in supply chains, affecting other companies in the same or different industries. The drop in final demand also leads companies in the most affected sectors to make a proportional reduction in the wages of their employees, thus weakening household consumption.
Thus, the MAS said; “In all likelihood, the recovery will be longer than in the past.”
For the global economy, the central bank expects the short-term recovery, supported by unprecedented fiscal and monetary policies, to turn into an incomplete recovery.
Global economic growth is forecast to return to trend during 2022 as the recovery fades, but from a lower level in late 2021, leaving the world economy on a permanently lower GDP trajectory, he said.
Global GDP is projected to contract 3.9 percent in 2020. While the global economy will recover to grow 6.2 percent in 2021, it will still be about 4 percent below the projected level before the Covid-19 crisis.
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