Singapore's 10% hit is pretty standard for a crisis: Daniel Moss

·3 min read
SINGAPORE - MARCH 24:  A general view of an empty attraction at a normally busy Jubilee Bridge, Marina Bay Sands, the ArtSicience Museum and the Singapore skyline on March 24, 2020 in Singapore. Singapore will not allow short term visitors to enter or transit through the country from March 24 to contain the spread of the imported COVID-19  infection.  (Photo by Suhaimi Abdullah/Getty Images)
Singapore will not allow short term visitors to enter or transit through the country from March 24 to contain the spread of the imported COVID-19 infection. (PHOTO: Suhaimi Abdullah/Getty Images)

By Daniel Moss

(Bloomberg Opinion) -- A tiny country that’s long been the barometer of global commerce is sending up distress flares. How big a blow the Covid-19 pandemic inflicts on Singapore’s economy will depend much on events outside its control.

Gross domestic product fell an annualised 10.6% in the first quarter, the Singapore government reported Thursday in an advance reading. That's worse than many economists — already bracing for a bad number — had forecast. Officials project a contraction of 1% to 4% for the year; GDP hasn’t hit that lower boundary since Singapore split from Malaysia five decades ago.

As grim as all this sounds, Singapore's economic performance since January has echoes in the swings of global and regional capitalism. The city-state took a big hit during the Asian financial crisis, the aftermath of the Sept. 11 terrorist attacks (which also constrained international travel) and in the Great Recession. Growth shrank 10% in the first quarter of 1998 as regional markets cratered and neighbouring Indonesia seethed with political upheaval. It contracted 10% from April to June in 2001 and 8.6% the following quarter. In the first quarter of 2009, the economy declined 9.9%. Singapore pulled through, as did the world, despite what many called “unprecedented” crises.

To be sure, Thursday’s numbers are inauspicious, particularly in a landscape cluttered with downgrades. Few economists anticipate the pandemic causing anything less than a global recession. Morgan Stanley tips a drop of 30.1% in U.S. GDP during the second quarter; Goldman Sachs Group Inc. expects a dip of 1% for the world in 2020.

But there’s plenty Singapore is doing to stave off the worst of outcomes. The government, praised at home and abroad for its response to the virus, has been frank with its citizens, and has responded with ample fiscal stimulus and the promise of more to come. An easing by the central bank appears all but certain next week. The mix of fiscal and monetary policy is correct.

For a city reliant on tourism, Singapore’s steps to curb the flow of people also shows seriousness. Short-term visitors have been barred while citizens and residents returning are required to self-isolate. Bars and cinemas will close. Yet schools remain open and there's no lockdown or state of emergency resembling that in Malaysia, the Philippines or parts of Indonesia. Authorities are trying to thread the needle. To its credit, the death toll is among the lowest in the Asia region.

Since its inception, Singapore has been a locus of capital flows, trade and international labor markets. What happens to the world's major commercial powers is often reflected in its economic data. With much of the global economy powering down, it will be tough for Singapore to push ahead.

This downturn is unique in that the world's major economies have all been dented at more or less the same time. China and Japan, two of Singapore’s biggest trading partners, are trying to restart after effectively grinding to a halt. Whether the U.S. is open for business next month or next quarter, America will be slower to restart than Asian powers.

In the past, bounces in the U.S. and China’s unstoppable growth trajectory helped Singapore regain its footing. With China in a long-term slowdown before the virus outbreak, that will be difficult to replicate. But, in time, both poles will revive, albeit with scars. The tides of global economics have buffeted the city-state before. For signs of eventual recovery, look here first.

© 2020 Bloomberg L.P.

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