ANALYSIS: ECONOMY-2
Whilst the government continues to place more stringent procedures, the economy wanes.
Counting the costs of the COVID-19 pandemic: lost output could hit $50b Singapore will still be slapped with a ‘permanent loss’, even as the economy is expected to recover in 2021.
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he Singapore government announced a significant step-up in social distancing measures, in contrast with the incremental tightening that had occurred since the start of the COVID-19 outbreak. The key measures—which include the closure of most workplaces (except for essential services and key economic sectors) and a nationwide closure of schools for the first time—are intended to act as a ‘circuit breaker’ against the rapid increase in locally transmitted cases in recent weeks and will apply for one month, ‘in the first instance’. Meanwhile, the Finance Minister also announced further support measures today - the third round is just around three months. $50b in lost value-added In light of the escalating global situation and tightening domestic measures, the Bank of America 58
SINGAPORE BUSINESS REVIEW | JUNE 2020
(BofA) had already severely cut their 2020 forecasts throughout ASEAN, including for Singapore. They forecast the economy to contract by -5.7% for the full year, the worst on record. Even after assuming a V-shaped recovery starting in the second half of the year and a 6.3% growth rebound in 2021, the total amount of ‘lost output’ due to the COVID-19 shock is estimated at around $50b over 2020-2021. “This would represent a permanent loss, with GDP levels still seen below the pre-COVID trajectory into 2021. At this stage, the risks remain to the downside and the cost could increase substantially if the pandemic continues into the second half of the year,” BofA said in its report. However, they also clarified that the decision to close “most” workplaces would be unlikely to incrementally add a significant economic cost for two reasons. First,
This would represent a permanent loss, with GDP levels still seen below the pre-COVID trajectory into 2021.
activity had already been impacted severely by the double-hit from the domestic and external demand channels. These impacts had already been incorporated into our forecast for a -5.7% contraction in growth. Second reason is that the government will allow essential services and other “economic sectors that are strategic, or form part of a global supply chain” to keep operating, albeit with safe distancing measures in place. As such businesses serving daily needs (food establishments, markets, clinics, hospitals, transport, key banking services, etc.), as well key export sectors such as semiconductor, pharmaceutical manufacturing and several others will be allowed to stay open. On the other hand, sectors such as construction, retail trade, real estate & recreational services are expected to be severely affected. “We estimate these severely
