Singapore’s Economy Contracted by 42.9% in the Q2

On Tuesday, Singapore’s Ministry of Trade and Industry released information regarding its economy. According to the data provided by the ministry, the local economy contracted by 42.9% in the second quarter of 2020 compared to the previous quarter on an annualized, seasonally adjusted basis. Importantly, the country’s economy contracted more than initially expected. The updated figure exceeded the official advance estimate released last month. Moreover, the updated figure confirmed the fact that Singapore entered a technical recession.

Notably, on a year-on-year basis, the country’s gross domestic product (GDP) shrank by 13.2% in the second quarter than ended on June 30. Furthermore, this result surpassed expectations.

As a reminder, in early April the country entered a partial lockdown, which the government called a “circuit breaker”. The government wanted to slow the spread of the coronavirus. Based on the information provided by the ministry, the fall in GDP was due to the Circuit Breaker measures implemented from 7 April to 1 June 2020. Moreover, weak external demand caused by the coronavirus pandemic also affected the economy.

The partial lockdown had a huge impact on the construction activity, as partial lockdown halted almost all construction activity in the second quarter. Consequently, the sector fell 53.9% year-over-year in the second quarter.

Let’s have a look at other sectors as well. For example, manufacturing shrank by 0.7% year-over-year. Moreover, accommodation and food services fell 41.4% on-year. Also, transportation and storage dropped 39.2% compared to the same period of time last year. Interestingly, finance and insurance grew by 3.4% in the second quarter. It is the only sector that registered growth.

Economy and risk factors

It is worth noting that, Singapore’s Ministry of Trade and Industry revised its full-year forecast for this year. According to the updated data, the ministry expects the local economy to contract between 5% and 7% in 2020. The previous forecast was also negative. The ministry made the decision to update its forecast. According to the ministry, three factors influenced the economic forecast.

The first is the external economic environment. The second is connected with international borders. Specifically that, it will take more time to reopen the borders. Also, sectors that rely on foreign workers. Notably, sectors reliant on foreign workers experienced bigger problems.

All of the reasons mentioned above have the potential to create additional problems for the local economy. Notably, there’s still a lot of uncertainty in the near term. The major question is how the situation regarding the pandemic will evolve in the coming quarters.