GDP expected to contract 11.8% in Q2: MAS survey

Accommodation and food services could be the worst-performing with a 26% decline.

Experts are now bracing for an 11.8% YoY gross domestic product (GDP) contraction in Q2, according to findings from the Monetary Authority of Singapore’s (MAS) survey of professional forecasters in June 2020.

The economy contracted 0.7% in Q1 compared to the same period last year, slightly better than the 0.8% forecast by professionals in March. But this was just the tip of the iceberg, with the country unlikely to post a recovery until 2021. Full year GDP is now expected to shrink 5.8% in 2020 from only 0.6% in the last survey.

Amongst sectors, the accommodation and food services are projected to be the worst-performing industry, with an expected 26% YoY decline. Other segments anticipated to record double-digit declines include the wholesale and retail trade segment, with a 12.8% YoY fall expected in 2020, trailed by the construction industry, with an 11.4% YoY contraction.

But as the song goes there’s a rainbow at the end of every storm, and experts anticipate a 4.8% GDP recovery in 2021.

“As reflected by the mean probability distribution, the most likely outcome is for the Singapore economy to shrink by 4.1 to 6.0% this year, with a 53.3% average probability assigned to these ranges. In the previous survey, the most likely growth outcome for 2020 had been projected at 0.0 to 0.9%, with a 52.2% average probability assigned,” the survey noted.

Further, two silver linings exist in the form of a positive GDP growth for the manufacturing sector (2.2%) and the finance and insurance sector (3.1%) for 2020, noted OCBC Treasury Research.

“This [manufacturing GDP growth] is mainly taking the cue from the better than expected March and April industrial production data, especially the silver lining in pharmaceuticals due to the global COVID-19 induced shortages. With more economies re-opening for business, global manufacturing PMIs have bottomed in April and are slowly improving, hence the coming months may see further resumption of industrial activity,” OCBC’s head of treasury research and strategy Selen Ling said in a media note, also sharing their more upbeat forecast of 5.4% YoY growth for the sector.

Meanwhile, the overall prices of goods are expected to shrink 0.5% for the whole of 2020, from the 0.8% price expansion reported back in March. Inflation is forecasted to come higher next year at 0.7%.

For Q2, all respondents expect lower corporate profitability in year-on-year terms. All respondents also expect corporate profitability to decline for the whole of 2020.

Meanwhile, 88.9% of the respondents forecast that private residential property prices will decline in quarter-on-quarter terms. More than three-quarters believe private residential property prices will decline, whilst 60% project that SGD corporate bond spreads will remain stable.

In 2021, respondents predict an improvement in corporate profitability, with 100% expecting an increase. About two-thirds expect private residential property prices to rise in 2021, and 60% project that bond spreads will fall.

Similar to the March survey, a tightening in global financial conditions, an escalation in the global COVID-19 situation, as well as heightening of trade tensions, were cited as the top three factors that could potentially weigh on financial market and lending conditions in Singapore, the survey revealed.

The share of respondents who cited tighter global financial conditions as a factor rose to 76.9% in the current survey, compared to only 30% in March.

As for what could drive improvements, respondents again cited the more accommodative global financial conditions. All respondents identified it as an upside driver, an increase from 70% in the previous survey. Respondents also cited a weaker S$NEER, fiscal stimulus measures, and a global economic recovery supported by the containment of the pandemic as other potential upside drivers, according to MAS.

An escalation of the COVID-19 situation remains the biggest downside risk to Singapore’s growth outlook, with 94.4% of respondents saying this and 72.2% ranking it as the top downside risk. Other risks include the escalation of trade tensions (38.9%), and risks stemming from the deterioration of the labour market (33.3%)—the latter highlighted by OCBC Treasury Research in a media note.

“The unemployment rate is set to rise to 3.6% by end-2020, just a tad above our house view of 3% to 3.5%,” the note read.