Get set for a prolonged recession: MAS

Economic recovery observed in Q3 will likely taper off in Q4, due to the lack of a vaccine.

Economic recovery from the fallout as a result of the COVID-19 pandemic is expected to be more prolonged than in previous recessions as threats of repeated outbreaks remain, the Monetary Authority of Singapore (MAS) said in its latest economic review.

Recovery will be continually hampered by the lack of vaccine. The lack of mass vaccination in Singapore and markets globally dangles the threat of repeated outbreaks, the review noted.

The momentum from the economic rebound following the exit from circuit breaker measures is also unlikely to be sustained due to the lack of vaccination programmes, which in turn obstructs Singapore from having a decisive recovery, MAS added. As a result, the regulator expects growth momentum to slow in Q4 and remain moderate in 2021.

Some pockets of the economy are not expected to recover to pre-COVID levels even by the end of next year: particularly, travel-related and contact-intensive services.

The pandemic’s shock is also expected to propagate through the demand side of the economy as firms and households continue to be restrained by income loss and market uncertainty.

The COVID-19 outbreak has impacted the economy’s expenditure differently than in the past, the regulator noted. Government investment was not able to provide much recovery support compared to before as the quarantine of foreign workers suspended large construction works. Cirrcuit breaker measures caused the shutdown of non-essential services and disrupted population mobility, leading to a contraction in private consumption. Trade services were also significantly affected, primarily travel, construction, maintenance & repair, and transportation.

From the income perspective, the hit to government income due to less taxes and subsidies was reportedly much larger this time than in previous recessions, reflecting the immense fiscal support provided by the government through various measures such as the Jobs Support Scheme.

Overall, MAS expects Singapore’s economic recovery to be ‘gradual and uneven,’ with COVID-19 infections have fallen to fewer than 10 cases per day and with most industries having reopened.