Singapore’s embattled economy could shrink by as much as 7% this year, which would be the worst reading since independence, with the government saying on Tuesday the coronavirus pandemic had throttled the key export sector.
The city-state is seen as a bellwether of the global economy and the historic contraction highlights the extreme pain being wrought on countries by the killer disease.
The warning also came hours before Singapore’s deputy prime minister is expected to unveil another stimulus package for the troubled city, which has been crippled by months of lockdowns around the world.
The trade ministry’s forecast – a downgrade from the 4% contraction predicted in March – came as official data showed the economy shrank 0.7% on-year in the first three months of the year, while it reduced 4.7% from the previous quarter.
The financial hub is one of the world’s most open economies, and is usually hit hardest and earliest during any global shock.
The ministry said the new estimate was made “in view of the deterioration in the external demand outlook” and the partial lockdown imposed domestically. A contraction of 7% would be the worst since the city’s independence in 1965.
Shutdowns in major markets such as the United States, Europe and China have crippled demand for exports, and a halt in international air travel has hammered Singapore’s key tourism sector.
Singapore has ordered the closure of most businesses, advised people to stay at home, and banned large gatherings. While officials say they may start relaxing the rules from early June, many restrictions will remain in place.
Deputy Prime Minister Heng Swee Keat, who is also the finance minister, is expected to announce fresh support measures in an address to parliament later on Tuesday.
That would be in addition to previous packages totalling S$60 billion ($42 billion), which are being paid for by using the country’s massive reserves.
Song Seng Wun, an economist with CIMB Private Banking, said he expects the second quarter to bear the full brunt of the virus’ fallout, with GDP expected to contract 15-20%.
“Singapore is a small and open economy whose trade is three times the size of GDP. The sharp contractions are a reflection of its external vulnerability,” he said.
The trade ministry also said “significant uncertainties” remain despite the opening up of some economies as they slowly emerge from lockdowns.
“First, there is a risk that subsequent waves of infections in major economies such as the US and eurozone may further disrupt economic activity,” it said.
“Second, a growing perception of diminished fiscal and monetary policy space in many major economies could damage confidence in authorities’ ability to respond to shocks.”
The trade ministry warned that “notwithstanding the downgrade, there continues to be a significant degree of uncertainty over the length and severity of the COVID-19 outbreak, as well as the trajectory of the economic recovery”.
Singapore’s central bank in March eased monetary policy to support the virus-hit economy.