SINGAPORE, May 15, 2020 – Singapore’s economy has been resilient but economic growth is expected to be significantly affected in the near-term due to the outbreak of the coronavirus (COVID-19). Strong policy support is expected to help cushion the impact. This is according to the 2019 Annual Consultation Report on Singapore published by the ASEAN+3 Macroeconomic Research Office (AMRO) today.
Growth slowed sharply to 0.7 percent in 2019 from 3.4 percent in 2018 as a result of the China-US trade tensions and global economic slowdown. The growth slowdown was mostly felt in the electronics and wholesale trade sectors due to the downswing in the electronics cycle. The broader economy held up well.
In AMRO’s latest update on April 21, the economy is expected to contract by 3.6 percent in 2020 due to the COVID-19 outbreak, with a large impact on the tourism, manufacturing, transport, and retail sectors. The deterioration of domestic sentiments will lead to a sharp pullback in private consumption and investment. However, the large fiscal stimulus measures in the FY2020 Budget as well as the recent supplementary budget, and a more accommodative monetary policy stance are expected to help cushion the impact.
Singapore’s economic outlook will contract further should the COVID-19 pandemic be more widespread, severe and protracted than anticipated, requiring more countries, including Singapore, to adopt stringent measures to contain the virus. The measures will lead to disruptions to economic activities and weaken global growth. In addition, a sharper slowdown in China and the region, and uncertainties surrounding the ongoing U.S.-China trade talks, remain key risks to Singapore.
Over the longer-term, Singapore is challenged by slowing productivity growth, climate change, an aging population, and rapidly growing socioeconomic and healthcare spending needs. These factors could weigh on the country’s growth potential and vibrancy.
While actively overcoming the near-term challenges, Singapore is unwavering in its restructuring efforts to enhance innovation and productivity. All 23 sector-specific Industry Transformation Maps have been implemented with coordination among government bodies and stakeholders.
To further drive Singapore’s transformation and growth strategies, the FY2020 Budget in February 2020 allocated a significant amount to deepen firms’ and workers’ capabilities over the next three years. Authorities are accelerating initiatives to reskill and retrain workers, particularly among mid-career professionals, and enhancing older workers’ employment prospects.
The government’s greater fiscal spending to support Singapore’s growing socio-economic needs is welcomed and should continue. Initiatives to improve housing affordability, increase spending for aging-related healthcare, and enhance accessibility and affordability of early childhood education, have been bolstered. The policy move to strengthen the retirement adequacy of Singaporeans, especially among the elderly and low-income households are commendable.
Cybersecurity threats and climate change are emerging risks that could disrupt the Singapore economy. It is noteworthy that policymakers have further strengthened efforts to mitigate cybersecurity risks and stepped up initiatives to address climate change and develop green financing. This includes the setting up of a new Coastal and Flood Protection Fund and S$1 billion over the next three years to build up cybersecurity and data security capabilities as part of the FY2020 Budget.
It is essential to ensure fiscal prudence in light of the growing socioeconomic, infrastructure, and climate change expenditure. Although the goods and services tax (GST) increase will not take place in 2021, the authorities remain committed to its implementation by 2025. AMRO supports the move by the authorities to explore debt-financing options, supported by the provision of guarantees, to help fund large infrastructure projects.
The report was prepared on the basis of AMRO’s Annual Consultation Visit to the country from November 18 to December 11, 2019 and data availability as of February 28, 2020. AMRO’s assessment of the outlook for 2020 has since been revised downwards to take into account recent data and information that have become available.
About AMRO and AMRO Annual Consultation Report:
The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute towards securing the macroeconomic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.
The Annual Consultation Report was prepared in fulfillment of AMRO’s mandate. AMRO is committed to monitoring, analyzing, and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.