Singapore’s GDP Growth Contracts in 1Q20 for First Time Since 2Q09

Bank of Thailand (BOT) decided to cut its policy rate by 25bps for the second consecutive meeting to a record low of 0.75% from 1%, previously. It was an emergency cut, five days prior to its scheduled monetary policy meeting on 25 March. BOT now anticipates the growth to contract sharply, where it downgraded its 2020 GDP growth forecast from a growth of 2.8% previously to -5.3% which would be the first negative contraction since 2009. We believe that there is a possibility of further rate cuts by BOT if the incoming indicators are weak. Thailand, which is heavily dependent on tourism, has registered a steep drop in tourist arrivals in February of 42.8% yoy (+2.5% in January). In addition, weak external demand and supply disruptions will also weigh on the country’s trade performance in the coming months. Nevertheless, BOT guided that it is ready to utilise additional policy tools which includes other monetary measures.

In Singapore, advanced estimates of Singapore’s real GDP growth show a sharp contraction of -2.2% yoy in 1Q20 from an expansion of 1% in 4Q19, making this its first decline since 2Q09. The declines were registered across both goods producing and services producing industries. Notably the services producing industries declined by 3.1% yoy (+1.5% in 4Q19), its first contraction since 2Q09 dragged by air transport, accommodation, food services and retail trade sectors amid the sharp fall in tourist arrivals and domestic consumption. In addition, the wholesale trade and other transportation and storage sector were negatively impacted by the fall in external demand and supply chain disruptions. As a result of the weakerthan-expected growth and worsening external and domestic economic environment, the Ministry of Trade and Industry lowered its GDP growth forecast for 2020 to range of between -4% to -1% from between -0.5% to +1.5% previously (+0.7% in 2019). In the same week, Singapore’s industrial production declined by 1.1% in February from a growth of 3.6% in January. February’s contraction was mainly led by the electronics cluster which fell by 17.3% yoy (-6.1% in January).

Going forward, we expect Singapore’s economy to remain weighed down by the ongoing Covid-19 outbreak, especailly if it is prolonged, in terms of trade, consumption and tourism amid supply chain disruptions, lower external demand and tighter border controls. Some of the slowdown may be mitigated by the introduction of the second stimulus package worth around S$48bn, much larger than the first package worth S$4.5bn which was announced during the Budget in February. Therefore, we also expect MAS to ease its policy rate at its next monetary policy meeting on 30 March 2020 which was brought forward from April initially.

Source: Affin Hwang Research - 27 Mar 2020