Asia Economy

Singapore's economic contraction in the second quarter was worse than initial estimates

Key Points
  • Singapore's economy contracted by 42.9% in the second quarter of 2020 on an annualized, seasonally-adjusted basis compared to the previous quarter, the Ministry of Trade and Industry said.
  • The latest update on Singapore's gross domestic product was worse than the official advance estimate released last month.
  • On a year-on-year basis, the economy shrank by 13.2% in the quarter ended June 30, according to the ministry.
A woman jogs past a cordoned off Merlion Park on June 12, 2020 in Singapore.
Suhaimi Abdullah | Getty Images

Singapore on Tuesday reported that its economy contracted more than initially expected and narrowed its economic forecast for the full year of 2020. 

The Singapore economy contracted by 42.9% in the second quarter of 2020 compared to the previous quarter on an annualized, seasonally-adjusted basis, said the Ministry of Trade and Industry. The updated figure was worse than the official advance estimate released last month, and confirmed the Southeast Asian country had entered a technical recession.

The estimate, computed largely from data in April and May, had shown the economy shrinking by 41.2% in the second quarter compared to the prior three months. 

On a year-on-year basis, the country's gross domestic product shrank by 13.2% in the quarter ended June 30, according to the ministry. That's worse than the earlier estimate of a 12.6% year-over-year contraction and 0.3% on-year dip recorded in the first quarter. 

Large parts of the Singapore economy were shut in early April as the country entered a partial lockdown — which the government called a "circuit breaker" — to slow the spread of the coronavirus. Some of the restrictions have been eased starting early June, allowing most of the economy to reopen. 

"The fall in GDP was due to the Circuit Breaker (CB) measures implemented from 7 April to 1 June 2020 to slow the spread of COVID-19 in Singapore, as well as weak external demand amidst a global economic downturn caused by the COVID19 pandemic," the ministry said in a statement. 

Covid-19 is the formal name of the coronavirus disease. In Singapore, there have been more than 55,000 confirmed infections and 27 deaths relating to the virus, according to the health ministry's data. Most of those infected have recovered, with 5,656 cases still "active" as of Monday, said the health ministry.

Singapore faces a 'bumpy road' to recovery from coronavirus impact: CIMB
Singapore faces a 'bumpy road' to recovery from coronavirus impact: CIMB

The partial lockdown halted almost all construction activity in the second quarter, resulting in the sector plunging 59.3% year-over-year in the second quarter, data by the Ministry of Trade and Industry showed. An outbreak among migrant workers living in dormitories — many of whom worked in construction — added to the sector's weakness, said the ministry.

Here's how the other sectors performed in the April-to-June quarter:

  • Manufacturing shrank by 0.7% year-over-year;
  • Accommodation and food services plunged 41.4% on-year;
  • Transportation and storage dived 39.2% from the previous year;
  • Wholesale and retail trade fell 8.2% year-on-year;
  • Finance and insurance grew 3.4% over the same period — the only sector that registered growth.

Revised 2020 forecast

The trade and industry ministry revised its full-year forecast for Singapore to register an economic contraction of between 5% and 7% in 2020. Previously, it had expected the country's GDP to fall by between 4% and 7%.

"The outlook for the Singapore economy has weakened slightly since May," the ministry said.

It cited three reasons for the deterioration in outlook:

  • A subdued external economic environment, which will weigh down sectors such as transportation and storage, as well as wholesale trade;
  • Reopening of international borders is expected to be more gradual than earlier expected, which will pressure sectors reliant on tourism and travel;
  • Sectors reliant on foreign workers living in dormitories have taken longer than expected to resume activity. Those workers account for more than 90% of Singapore's cumulative confirmed cases.

"Nonetheless, there are several areas of strength in the Singapore economy," added the ministry. It explained that demand for semiconductors has been stronger than expected, while the biomedical manufacturing cluster is also expected to continue growing. 

Still, the ministry said there's still a lot of uncertainty in the near term.

"Notwithstanding the narrowing of the forecast range, there continues to be significant uncertainty over how the COVID-19 situation will evolve in the coming quarters, and correspondingly, the trajectory of the economic recovery in both the global and domestic economies."