Singapore's economy contracts by 7% in the third quarter as the country gradually loosens lockdown to allow more activities.
Official estimates from the Ministry of Trade and Industry indicate that Singapore's economy rebounded by 7.9% in the July-to-September period. This suggests a reversal from the 13.2% contraction in the second quarter.
The Southeast Asian economy experienced a 7% contraction in the third quarter compared with a year ago, the ministry reported. That somehow missed the 6.8% year-over-year contraction predicted by a Reuters poll of analysts. This was deemed slower than the revised 13.3% year-on-year decline in the past quarter.
“The improved performance of the Singapore economy in the third quarter came on the back of the phased re-opening of the economy following the Circuit Breaker that was implemented between 7 April and 1 June 2020,” the ministry’s statement read.
Performance of different sectors
The biggest quarter-on-quarter growth of 38.7% was posted by the construction industry. However, on a year-on-year basis, the sector dropped by 44.7%.
Services-producing industries increased by 6.8% in the quarter that ended in September compared with the previous three months. However, it contracted by 8% year over year. Manufacturing had an expansion of 3.9% quarter-on-quarter and 2% year-on-year.
In a separate statement, the Monetary Authority of Singapore (MAS) announced that it kept its exchange-rate based monetary policy on hold.
In March, the country’s central bank decided to flatten the Singapore dollar exchange rate band’s rate of appreciation and changing its center lower. This is considered one of the bank's most aggressive easing moves in years.
According to MAS, sequential growth is expected to slow in the final quarter of 2020 and remain modest next year even if Singapore's economy is recovering.
MAS cited a cautious external demand as cross-border travel restrictions continue. These are actors that will affect the country’s economic prospects.
“The Singapore economy is expected to see a recovery in 2021, alongside receding disinflation risk. However, the underlying growth momentum will be weak, and the negative output gap will only narrow slowly in the year ahead,” said the central bank.
Singapore is predicted to contract by between 5% and 7% this year compared with last year. Inflation may stay low, with the MAS predicting consumer prices to make a change of between -0.5% and 0% this year.
A technical recession
In July, the Ministry of Trade and Industry said that the Southeast Asian economy entered a technical recession after falling by 41.2% in the second quarter compared with the previous quarter.
According to its previous official forecast, the economy may contract between 4% and 7% this year. This may be considered as the harshest downturn since the country’s independence in 1965.
A technical recession happens when there are two consecutive quarters of quarter-on-quarter contraction in gross domestic product.
“We are not at the beginning of the end, but rather the end of the beginning,” said Ravi Menon, managing director of the MAS.
“The recovery is likely to be slow and uneven, weighed down by renewed outbreaks of infection here or abroad,” he added. “We will enter 2021 with higher levels of debt, in both the corporate and household sectors, which will act as a further drag on growth and could become a source of vulnerability.”
However, the country’s financial system is still buoyant and strong to address the economic weakness, said Menon. He also said that the authority’s stress test revealed that major banks and insurers, under “very adverse” scenarios, produce adequate buffers to face any uncertainties.
