Like many other countries that have been economically affected by the COVID crisis, Singapore, Southeast Asia’s fifth largest economy, has officially entered into a technical recession with the economy contracting 13.2% year on year during the second quarter of 2020 and The Straits Times Index entering bear territory as well with a decline of nearly 20% this year.
By industry, 70% of Singapore’s nominal GDP is from the services sector and about 26% from the goods-producing sector (Manufacturing, Construction, Utilities).
Of the services sector, the largest sub-sector is the Wholesale & Retail Trade sector which accounts for 17.3% of Singapore’s GDP, followed by Business Services accounting for 14.8% and Finance and Insurance accounting for 13.9% of Singapore’s GDP in 2019. The largest services subsector – Wholesale and Retail Trade – was heavily hit by the COVID pandemic when Singapore, like many other countries around the world, went into lockdown with retail sales declining 52% year on year on May 2020 and 27.8% year on year in June 2020.
However, as business activities resumed in June 2020 (in phases), retail sales jumped 51% in June 2020, with almost all subsectors in Singapore’s Wholesale and Retail Trade sector enjoying gains, reflecting an unleashing of pent up consumer demand. In fact, sales in the Watches & Jewellery industry jumped a whopping 1,236.9% month on month, a spectacular gain for an industry considered to be non-essential, and the demand for which is highly elastic which suggests Singapore’s consumer spending power and consumer confidence have been little affected by the Covid pandemic so far.
Domestic wholesale sales dropped 9.6% year on year in the first quarter of 2020 while foreign wholesale sales dropped 12.2% year on year in the first quarter of 2020 as all domestic and foreign trade except essential industries such as food decelerated sharply during the Covid lockdown. Consequently, wholesale sales declines were registered in all sub-sectors in the domestic Wholesale Trade sector except Food, Beverages & Tobacco which grew 3.5% year on year during the first quarter of 2020, and General Wholesale Trade which rose by 1.4% year on year during the same period.
As global trade slowed and global supply chains nearly ground to a halt, all sub-sectors within Singapore’s Foreign Wholesale Trade sector saw year on year declines in the first quarter of 2020 and all except Other Wholesale Trade saw quarter-on-quarter sales declines.
Singapore’s Manufacturing sector, the single largest GDP contributing sector, accounting for 20.9% of Singapore’s nominal GDP in 2019, was also affected by the COVID crisis with manufacturing output declining 8.1% in May 2020 and 6.7% in June 2020. Excluding biomedical manufacturing, manufacturing output grew 2.1% in June 2020 clearly benefiting from the gradual lifting of lockdown measures.
With SMEs accounting for 99% of Singapore’s 273,100 business establishments and 72% of Singapore’s 3.52 million employees, the economic slowdown caused by the nationwide lockdown has dented SME finances causing Singapore’s unemployment rate to rise to 2.9% in the second quarter of 2020, the highest in more than a decade, and up from 2.4% in the previous quarter. The number of bankruptcy applications also reached an all-time high in March this year, though the number rapidly declined in the months after as the Singaporean government swiftly put relief measures in place through the Covid-19 (Temporary Measures) Act.
On the bright side, at less than 3%, Singapore’s unemployment rate is still on the lower end of the unemployment scale compared to the rest of the world; Singapore’s neighbor in the north, Malaysia, registered an unemployment rate of 5.3% in May 2020, up from 5% in April 2020. Additionally, Singaporean households are relatively financially stable with household debt being well covered by financial assets which suggests the general population is reasonably well placed to weather an economic storm.
Singapore’s strong fiscal position also helped it maintain its AAA sovereign debt rating despite the government rolling out large stimulus measures (as much as 12% of GDP) to support the economy from the Covid impact. By comparison, Australia saw its credit rating outlook revised to negative by S&P Ratings.
The bigger potential risk to Singapore’s recovery is a downturn in the global economy and international trade, as well as economic downturns among key trading partners such as China, the United States, and Malaysia which will have a knock-on effect on Singapore’s economy as well.
China is Singapore’s biggest merchandise trade partner as of 2019.
And the United States is Singapore’s biggest services trade partner as of 2018, according to official data.