What's at stake with this return to Phase 2?

UOB weighs in on the reimposition of stricter measures as COVID-19 cases increase.

Starting May 8, tighter social restriction measures will be reimposed in Singapore to prevent the spread of COVID-19.

Decribed by Educaation Minister Lawrence Wong as a "return to phase 2," these restrictions are similar to the measures imposed between August 4 and December 27, 2020.

These restrictions are currently set to be lifted by May 30.

UOB Global Economics & Markets Research Economist Barnabas Gan said this would not affect Singapore's GDP, provided that cases would not spike to the point that a circuit breaker needs to be reimplemented.

"The return to Phase 2 will likely have little impact on Singapore’s GDP growth in 2021. This is due to two reasons: (1) there are no restrictions on business operations (except for the closure of gyms and dine-in services restriction of up to 5 persons), while (2) the return to Phase 2 will last for nearly three weeks," Gan said.

Despite this, services and the food and beverage sectors could suffer from these measures, in light of the 50% reduction of employees allowed in workplaces, entry restrictions in malls, and lower group sizes allowed for gatherings and dine-ins.

Travel bans on migrant workers from specific countries might also negatively affect labour-intensive sectors such as construction.

But the government has not ruled out the possibility of reimposing a circuit breaker.

"I think it is important for us to clarify that we we have not ruled out the possibility of a circuit breaker," said Health Minister Gan Kim Yong in a press briefing May 4, adding that it could still be avoided at this time.

UOB noted that a rise in COVID-19 cases similar to the levels seen in the first half of last year could see Singapore returning to circuit breaker.

"Should that come to pass, economic momentum will inevitablybe dragged by renewedweakness in the services and construction sectors, coupled with headwinds against Singapore’s tourism sector. Depending on the duration of another circuit breaker, such a scenario could see Singapore revisiting the prospect of a GDP contraction in 2021," Barnabas Gan said.

Singapore's GDP contracted by 5.4% in 2020.