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Singapore Economy: Current State, And Prospects

Pie chart showing Singapore's nominal GDP by industry in 2019. Singapore's manufacturing sector was the largest contributor to GDP was a 20.9% share followed by wholesale and retail trade with a 17.3% share, business services with a 14.8% share, finance and insurance with a 13.9% share, other services Industries 11.3% share, transportation and storage with a 6.7% share, information and Communications with a 4.3% share, ownership and dwellings with a 3.8% share, construction with a 3.7% share, accommodation and Food Services with a 2.1% share, and utilities with a 1.2%. Data from the department of Statistics Singapore.

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).

Pie chart showing Singapore's nominal GDP by industry in 2019. Singapore's manufacturing sector was the largest contributor to GDP was a 20.9% share followed by wholesale and retail trade with a 17.3% share, business services with a 14.8% share, finance and insurance with a 13.9% share, other services Industries 11.3% share,  transportation and storage with a 6.7% share, information and Communications with a 4.3% share, ownership and dwellings with a 3.8% share, construction with a 3.7% share, accommodation and Food Services with a 2.1% share, and utilities with a 1.2%. Data from the department of Statistics Singapore.

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.

Bar chart showing the percentage change in retail sales by industry in Singapore for the month of June 2020. Department store sales increased 319.3% month on month but declined 69.5% year-on-year. Supermarket and hypermarket sales declined 3.3% month-on-month but grew 43.4% year on year. Mini Mart and convenience store sales declined 0.1% month-on-month but increased 8.7% year on year. Food and alcohol sales increased 34.3% month on month but declined 45.7% year on year. Motor vehicle sales grew 212.4% month on month but declined 47.8% year on year. Petrol service stations sales grew 51.9% month on month but declined 33.6% year on year. Cosmetics, toiletries and medical goods sales increased 34.2% month-on-month but declined 33.1% year on year. Wearing apparel and footwear sales increased 251.1% month-on-month but declined 63.4%. Furniture and household equipment sales increased 125.1% month on month but declined 19.9% year-on-year. Recreational goods sales increased 126.3% month on month but declined 40.7% year on year. Watches and jewellery sale increased 1236.9% month-on-month but declined 53.5% year-on-year. Computer and telecommunications equipment sales increase 49.7% month on month and also increased 20.9% year on year. Optical goods and book sales increased 228.3 percent month on month but declined 39.4% year on year. Sale in the other categories grew 90.5% month-on-month but declined 42.5% year on year. Data the department of Statistics Singapore.

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.

Bar chart showing the percentage change in domestic wholesale trade sales by industry in Singapore for the month of June 2020. Food, beverages and tobacco sales increased 4.6% quarter-on-quarter and increased 3.5% year on year. Household equipment and furniture sales fell 9% quarter-on-quarter and fell 16.4% year on year. Petroleum and Petroleum products sales dropped 1% quarter-on-quarter, and 10.4% year on year. Chemicals and chemical products sales increased 5.9% quarter-on-quarter and fell 7.7% year on year. Electronic components sales dropped 2.8% quarter-on-quarter and dropped 17.5% year-on-year. Industrial and construction machinery sales declined 6.3% quarter on quarter and dropped 15.2% year on year. Telecommunications and computer sales dropped 4.3% quarter-on-quarter, and fell 9.9% year on year. Metals, timber and construction sales fell 1.6% quarter on quarter and dropped 15.3% year on year. General wholesale trade dropped 3% quarter on quarter and increased 1.4% year on year. Ship chandlers and bunkering sales dropped 0.7% quarter on quarter and dropped 10% year on year. Transport equipment sales dropped 9.5% quarter-on-quarter and dropped 10.5% year-on-year. Other wholesale trade sales dropped 0.9% quarter-on-quarter and dropped 3.6% year-on-year. Data from the department of Statistics Singapore.

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.

Bar chart showing the percentage change in foreign wholesale trade sales in Singapore during the month of June 2020. Food, beverages tobacco wholesale sales dropped 4% quarter-on-quarter and 2% year on year. Household equipment and furniture wholesale sales dropped 0.5% quarter-on-quarter and 6% year on year. Petroleum and Petroleum products wholesale sales dropped 14.1% quarter-on-quarter and 18.6% year on year. Chemical and chemical products wholesale sales dropped 9.9% quarter-on-quarter and 10.9% year-on-year. Electronic components wholesale sales dropped 0.5% quarter-on-quarter 3.4% year-on-year. Industrial & Construction machinery wholesale sales dropped 7.9% quarter-on-quarter and 18% year on year. Telcommunications and computers wholesale sales dropped 4.1% quarter-on-quarter and 6.6% year-on-year. Metals, timber and Construction wholesale sales dropped 7% quarter on quarter and 4% year on year. General wholesale trade dropped 14% quarter on quarter and 12.7% year on year. Ship chandlers and bunkering dropped 9.7% quarter on quarter 0.6% year-on-year. Transport equipment wholesale sales dropped 9.2% quarter-on-quarter and 22.2% year-on-year. Other wholesale trade was unchanged quarter-on-quarter and dropped 0.5% year-on-year. Data from the department of Statistics Singapore.

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.

Line chart showing Singapore's manufacturing output on your growth during the month of April May and June 2020. Singapore total manufacturing output increased 12% in April 2020, dropped 8.1% in May 2020 and dropped  6.7 percent in June 2020. Excluding biomedical manufacturing Singapore's manufacturing output dropped 2.7% in April 2020, dropped 10.3% in May 2020, and increased 2.1% in June 2020. Data from Singapore economic development board.

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.

Line chart showing Singapore household debt as a percentage of household financial assets. Singapore's household debt as a percentage of household financial assets at 23.81% in the first quarter of 2020, 24.07% in the fourth quarter of 2019, 24.64% in the third quarter of 2019, 25.05% in the second quarter of 2019, 25.72% in first quarter of 2019, 26.65% in the fourth quarter of 2018, 26.78% in the third quarter of 2018, 27.03% in the second quarter of 2018, 27.19% in the first quarter of 2018, 27.39% in the fourth quarter of 2017, 27.62% in the third quarter of 2017, 27.67% in the second quarter of 2017, and 27.94% in the first quarter of 2017. Data from the department of Statistics analysis from LD investments.

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.

Bar chart showing Singapore's top five merchandise trade partners in 2019. With a total  merchandise trade value of S$ 137.3 billion, Mainland China was Singapore's top merchandise trading partner in 2019, followed by Malaysia with S$ 113 billion, the United States with S$ 105 billion, The EU with S$ 93 billion, and Taiwan with S$ 66.5 billion.

And the United States is Singapore’s biggest services trade partner as of 2018, according to official data.

Bar chart showing Singapore's top five service trade partners in 2018. With a total service trade value of S$ 75.3 billion, the United States was Singapore's top services trading partner in 2018, followed by Japan with S$ 37.4 billion, Mainland China with S$ 35.3 billion, Australia with S$ 27.3 billion, and Ireland with S$ 23.3 billion.