The double-digit decline in second-quarter economic growth could mark the beginning of the end for Singapore’s worst recession.
Analysts believe the economy may have already hit rock bottom and is now on the path to recovery, but the depth of the decline means growth will remain in negative territory through the year.
Advance estimates from the Ministry of Trade and Industry yesterday showed that the economy shrank 12.6 per cent year on year in the second quarter as circuit breaker measures at home and lockdowns abroad crimped growth.
However, the advance estimates were largely based on data from April and May, coinciding with the two-month circuit breaker.
The absence of data from last month, when Singapore started to relax restrictions may have distorted the estimate, said analysts, who expect the second-quarter estimate to be revised higher next month to reflect the impact of the reopening.
“The worst is likely over,” said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.
She said that with the economy shrinking 6.5 per cent year on year in the first six months, some stabilisation may start to emerge with smaller contractions in subsequent quarters. However, Mr Irvin Seah, senior economist at DBS Bank, said that the turn of the tide may not lift all boats at the same time.
“The pace of recovery in the construction and some service sectors will be comparatively slower.”
Sectors like accommodation and air transport were severely affected by global and domestic travel curbs, which brought visitor arrivals and air travel to a standstill, so tourism and aviation could potentially take more than two years to recover to pre-Covid-19 levels, Mr Seah said.
“Even as policymakers try to establish travel bubble and green lanes, aiming to revive cross-border travel, short of an effective vaccine, the process is expected to be painfully slow due to the persistent spread of the virus across the world,” he added.
Mr Seah also noted that the phased reopening of the economy should boost private consumption that had collapsed amid the circuit break period.
The unprecedented fiscal measures, in the form of four stimulus packages, would also start to show up in gross domestic product growth from the third quarter.
In fact, some of the Budget measures targeting jobs may potentially be extended if the domestic labour market continues to soften further, Mr Seah said.