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PMI hints at rebound in economic activity in third
quarter…
… boding well for economy to return to positive growth during
2021-22
The Singapore economy has been hit by multiple shocks during
2020 from the impact of the protracted lockdown on domestic
consumption and business activity, as well as the collapse of the
tourism industry due to international travel bans. The Singapore
Ministry of Trade and Industry (MTI) has sharply revised down its
GDP forecast for calendar 2020 to a range of -5.0% to -7.0%.
Utilising its deep fiscal reserves, the Singapore Government has
deployed massive fiscal stimulus measures to support domestic
demand, helping to support many segments of the economy that are
experiencing severe downturns, including tourism, retail trade,
commercial aviation and construction. Despite the severe economic
shocks, Singapore has remained resilient, continuing to position
itself as the Asia-Pacific region's leading international financial
centre.
Extended lockdown triggers severe recession
The Singapore economy entered a severe recession in the first
half of 2020, as GDP contracted by 13.3% on a year-on-year (y/y)
basis in the second quarter, worsening from the 0.3% contraction in
the previous quarter. The fall in GDP was due to the lockdown
"Circuit Breaker" measures implemented from 7th April to 1st June
2020 to slow the spread of the COVID-19 pandemic in Singapore, as
well as weak external demand amidst a global economic downturn
caused by the COVID-19 pandemic. Although lockdown measures have
been eased subsequently, many restrictions still have continued to
impact upon economic activity during the second half of 2020.
The easing of lockdown measures has resulted in a sharp rebound
in economic activity in the third quarter. Based on advance
estimates for the third quarter of 2020, the Singapore economy
expanded by 7.9% on a quarter-on-quarter (q/q) seasonally adjusted
basis, although when measured on a year-on-year basis, the economy
contracted by 7.0%.
In the second quarter of 2020, the manufacturing sector shrank
by 0.8% y/y and by 9.1% q/q, while the construction sector
contracted by 59.9% y/y and 59.4% quarter-on-quarter, since most
construction activity stopped during the lockdown period.
Construction firms were also affected by manpower disruptions
arising from additional measures to curb the spread of the COVID-19
virus, including movement restrictions at foreign worker
dormitories. Services sector output slumped by 13.6% y/y and by
11.2% quarter-on-quarter, due to the severe impact of the lockdown
and travel bans across many segments of the services economy.
In the third quarter of 2020, the easing of lockdown measures
resulted in a rebound in construction activity, which rose by 38.7%
q/q, albeit still contracting by 44.7% y/y. Manufacturing posted a
moderate rise of 3.9% quarter-on-quarter, and was up 2.0% y/y.
Easing of restrictions also boosted the services sector in the
third quarter of 2020, as it grew by 6.8% q/q although still
posting a severe contraction of 8% y/y.
IHS Markit PMI rebounds in third quarter
The "circuit breaker" measures that were introduced in April
resulted in widespread closures of non-essential businesses as the
government acted to stem the spread of the COVID-19 pandemic. This
was the key factor causing activity to fall at a survey-record rate
in April. Lockdown measures also had a considerable impact on
demand, which plummeted. As lockdown restrictions were eased from
June onwards, the IHS Markit Singapore PMI has rebounded.
The latest survey data showed that the IHS Markit Singapore
Purchasing Managers' Index™ (PMI) rose from 43.6 in August to 45.1
in September. Despite the improvement, the PMI still signalled a
contraction in economic activity. However, the average PMI reading
for the third quarter was notably higher than that seen in the
second quarter, representing a rebound from the peak impact of the
COVID- 19 pandemic.
Business activity continued to contract in September, with
reduced output concentrated in sectors relating to accommodation
& food services as well as administrative & support
services. Underlying data showed that construction activity
returned to growth as project sites were permitted to restart and
workers being cleared to resume work. Manufacturing output was also
broadly stable.
The latest manufacturing output data for September showed a
strong rebound, rising 24.2% y/y. This reflected very rapid
expansion in biomedical manufacturing output, which rose by 89.8%
y/y, with pharmaceutical output up 113.6% y/y. Electronics output
also showed strong growth.
However, the transport engineering sector contracted sharply,
down 35.8% y/y, with aerospace engineering down 44% y/y due to the
disruption in global air transport, while the marine and offshore
engineering segment recorded a decline of 40.9% y/y, reflecting the
slump in the global oil and gas sector.
With total output and sales still showing contraction, firms
continued to reduce headcounts as part of efforts to control costs
and remain viable, albeit with the rate of job losses easing in
September.
Singapore's electronics sector recovers from lockdown
slump
As the impact of the pandemic widened in the Asian region during
April, the headline IHS Markit Global Electronics PMI fell to 43.3
in April, down from 48.6 in March, to signal a sharp deterioration
in business conditions faced by electronics manufacturers. The
April reading pointed to the fastest decline since April 2009, with
many businesses temporarily closed amid the global COVID-19
outbreak.
In addition to supply side disruptions to electronics output,
widespread lockdowns of retail businesses in many major markets
worldwide also disrupted consumer demand for electronics goods as
well as products that have significant electronics components, such
as autos. Extended periods of lockdown in major electronics
manufacturing hubs worldwide resulted in disruption of industrial
production and consumption, impacting on global electronics supply
chains.
However, since April, the IHS Markit Global Electronics PMI has
showed significant improvement, with the headline index rising to
51.1 in September, the first expansion in business conditions for
13 months. Underlying data showed positive expansion in September
for the consumer, communications and industrial electronics
subsectors.
Reflecting the global rebound in the global electronics sector
as lockdowns eased in many key markets, Singapore's electronics
sector output grew 30.1% in September 2020 on a year-on-year basis.
The electronics sector's expansion mainly reflected very strong
growth of 37.4% y/y in the semiconductors segment, which is by far
the largest sub-sector of Singapore's electronics cluster,
supported by demand from cloud services, data centres and the 5G
market. Overall, output of the electronics cluster grew by 7.0%
year-on-year in the first nine months of 2020.
Fiscal stimulus measures
The Singapore government has announced massive fiscal stimulus
measures amounting to an estimated SGD 100 billion to try to
mitigate the negative economic impact of the global pandemic and
lockdown measures on the economy. This will result in 2020 overall
budget deficit being the largest in Singapore's history since
independence.
However, Singapore has one of the strongest fiscal positions of
any nation in the world, with no net government debt in 2019.
Singapore is drawing up to a total of SGD 52 billion from past
reserves this financial year, which will fund a large proportion of
the fiscal stimulus measures. While the total size of Singapore's
reserves is a matter of national security and therefore not
disclosed, the nation maintains deep financial reserves which have
been carefully built up, invested and managed over decades.
Consequently, despite the large-scale fiscal stimulus measures
due to the exceptional global crisis caused by the pandemic,
Singapore's fiscal credentials remain extremely strong, without any
net government debt even after this year's drawdown of past
reserves. By way of comparison, the UK public sector net debt
excluding public sector banks hit 103.5% of GDP in September 2020,
while for the Euro Area, at the end of the second quarter of 2020,
the government debt to GDP ratio increased to 95.1%.
Medium-term economic outlook
Due to the protracted lockdown of the domestic economy and the
worldwide slump in export orders, the highly export-oriented
Singapore economy has experienced a severe recession in 2020. The
shutdown of international air travel worldwide has also resulted in
the collapse of Singapore's tourism sector and the commercial
aviation industry. Unlike larger nations like China and Japan,
domestic tourism within Singapore cannot play a significant role in
mitigating any protracted disruption of international tourism.
Singapore's role as a key APAC hub for conferences and conventions
is also likely to be disrupted for an extended period of time. The
Singapore meetings, incentives, conferences and exhibitions
industry accounted for around 22% of tourist receipts in recent
years.
Globally, low oil prices have forced oil and gas companies to
reduce spending, especially on new projects. Singapore's marine and
offshore engineering sector is expected to face a renewed period of
weak economic conditions, after having only recently emerged from
protracted recessionary conditions following the 2014-2016 oil
price slump.
Consequently, despite the substantial fiscal stimulus measures
deployed by the Singapore government to mitigate the economic
shockwaves, the headwinds to economic recovery are considerable.
Moreover, a key downside risk to the near-term outlook would be
from any new waves of COVID-19 cases, which could result in renewed
tightening of lockdown restrictions, further dampening the path of
economic recovery.
Without a COVID-19 vaccine that has completed Phase 3 clinical
trials yet, there is significant uncertainty over how the COVID-19
situation will evolve in the coming quarters, and correspondingly,
the trajectory of the economic recovery in both the global and
domestic economies in the near-term.
However, based on the assumption that COVID-19 vaccines will be
deployed during the course of 2021 in many countries worldwide, the
pandemic is expected to gradually be brought under control. This is
expected to allow the Singapore economy to return to positive
growth during 2021-22. GDP is forecast to grow by 3.7% in 2021,
strengthening to a more rapid pace of 6% in 2022 as the economy
recovers from the pandemic.
Rajiv Biswas, Asia Pacific Chief Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
